0001822993jxn:FixedIndexedAnnuityMemberus-gaap:PolicyholderAccountBalanceAboveGuaranteedMinimumCreditingRateRangeFrom0151AndGreaterMember2022-12-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-40274
Jackson Financial Inc.
(Exact name of registrant as specified in its charter)

Delaware98-0486152
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1 Corporate Way, Lansing, Michigan48951
(Address of principal executive offices)(Zip Code)
(517) 381-5500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Class A Common Stock, Par Value $0.01 Per ShareJXNNew York Stock Exchange
Depositary Shares, each representing a 1/1,000th interest in a share of Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series AJXN PRANew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     

Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
☐☑
Accelerated filer☐
Non-accelerated filer
☑☐
Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of May 4, 2022,3, 2023, there were 86,299,75482,490,622 shares of the registrant’s Class A Common Stock,common stock, $0.01 par value, outstanding.

 As of May 3, 2023, there were outstanding 22,000,000 depositary shares, each representing a 1/1,000th interest in a share of Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A.




TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 20222023 and December 31, 20212022
2
Condensed Consolidated Income Statements for the three months ended March 31, 20222023 and 20212022
3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 20222023 and 20212022
4
Condensed Consolidated Statements of Equity for the three months ended March 31, 20222023 and 20212022
5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20222023 and 20212022
6
Note 1. Business and Basis of Presentation
8
Note 2. New Accounting Standards
10
Note 3. Segment Information
1216
Note 4.4. Investments
1721
Note 5.5. Derivative Instruments
3235
Note 6.6. Fair Value Measurements
3639
Note 7.7. Deferred Acquisition Costs
5256
Note 8.8. Reinsurance
52
Note 9. Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds
54
Note 10. Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees
57
Note 11.Federal Home Loan Bank Advances9. Reserves for Future Policy Benefits and Claims Payable
61
Note 12. Income Taxes10. Other Contract Holder Funds
6167
Note 11. Separate Account Assets and Liabilities
72
Note 12. Market Risk Benefits
73
Note 13. Long-Term Debt
76
Note 14. Federal Home Loan Bank Advances
77
Note 15. Income Taxes
77
Note 16. Commitments and Contingencies
6178
Note 14.17. Other Related Party Transactions
6179
Note 15.18. Operating Costs and Other Expenses
6279
Note 16.19. Accumulated Other Comprehensive Income (Loss)
6279
Note 17.20. Equity
6380
Note 18.21. Earnings Per Share
6482
Note 22. Revision and Reclassification of Prior Period Financial Statements
1983
.Note 23. Subsequent Events
6584
Forward-looking Statements - Cautionary Language
6685
Available Information
6786
Principal Definitions, Abbreviations and Acronyms Used in the Text and Notes toof this Report
6786
Overview of Management's Discussion and Analysis of Financial Condition and Results of Operations
6988
Executive Summary
6988
Non-GAAP Financial Measures
7090
Key Operating Measures
7493
Macroeconomic, Industry, and Regulatory Trends
7897
Consolidated Results of Operations
82101
Segment Results of Operations
84103
Investments
89109
Policy and Contract Liabilities
100116
Liquidity and Capital Resources
102117
Summary of Critical Accounting Estimates
109124
110128
110128
PART II—OTHER INFORMATION
111129
111129
111129
111129
111129
112130
SIGNATURES
114131
1


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
.
Jackson Financial Inc.
Condensed Consolidated Balance Sheets
(in millions, except per share data)
March 31,December 31,
20222021
(Unaudited)
Assets
Investments:
Debt Securities, available-for-sale, net of allowance for credit losses of $32 and $9 at March 31, 2022 and December 31, 2021, respectively (amortized cost: 2022 $48,218; 2021 $49,378)$46,770 $51,547 
Debt Securities, at fair value under fair value option1,786 1,711 
Debt Securities, trading, at fair value115 117 
Equity securities, at fair value261 279 
Mortgage loans, net of allowance for credit losses of $84 and $94 at March 31, 2022 and December 31, 2021, respectively11,430 11,482 
Mortgage loans, at fair value under fair value option190 — 
Policy loans (including $3,472 and $3,467 at fair value under the fair value option at March 31, 2022 and December 31, 2021, respectively)4,463 4,475 
Freestanding derivative instruments926 1,417 
Other invested assets3,404 3,199 
Total investments69,345 74,227 
Cash and cash equivalents2,674 2,623 
Accrued investment income484 503 
Deferred acquisition costs14,037 14,249 
Reinsurance recoverable, net of allowance for credit losses of $12 and $12 at March 31, 2022 and December 31, 2021, respectively32,402 33,126 
Deferred income taxes, net1,343 954 
Other assets1,158 853 
Separate account assets231,198 248,949 
Total assets$352,641 $375,484 
Liabilities and Equity
Liabilities
Reserves for future policy benefits and claims payable$15,567 $17,629 
Other contract holder funds59,843 59,689 
Funds withheld payable under reinsurance treaties (including $3,640 and $3,639 at fair value under the fair value option at March 31, 2022 and December 31, 2021, respectively)27,199 29,007 
Long-term debt2,640 2,649 
Repurchase agreements and securities lending payable599 1,589 
Collateral payable for derivative instruments525 913 
Freestanding derivative instruments405 41 
Other liabilities4,376 3,944 
Separate account liabilities231,198 248,949 
Total liabilities342,352 364,410 
Commitments, Contingencies, and Guarantees (Note 13)00
Equity
Common stock, (i) Class A Common Stock 900,000,000 shares authorized, $0.01 par value per share and 85,263,608 and 88,046,833 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively and (ii) Class B Common Stock 100,000,000 shares authorized, $0.01 par value per share and nil and 638,861 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively (See Note 17)1 1 
Additional paid-in capital6,081 6,051 
Treasury stock, at cost; 9,203,441 and 5,778,649 shares at March 31, 2022 and December 31, 2021, respectively.(351)(211)
Accumulated other comprehensive income (loss), net of tax expense (benefit) of $(547) in 2022 and $194 in 2021(939)1,744 
Retained earnings4,782 2,809 
Total shareholders' equity9,574 10,394 
Noncontrolling interests715 680 
Total equity10,289 11,074 
Total liabilities and equity$352,641 $375,484 

March 31,December 31,
2023
2022(1)
Assets(Unaudited)(Unaudited)
Investments:
Debt Securities, available-for-sale, net of allowance for credit losses of $29 and $23 at March 31, 2023 and December 31, 2022, respectively (amortized cost: 2023 $49,026; 2022 $48,798)$43,774 $42,489 
Debt Securities, at fair value under fair value option2,255 2,173 
Debt Securities, trading, at fair value101 100 
Equity securities, at fair value225 393 
Mortgage loans, net of allowance for credit losses of $146 and $95 at March 31, 2023 and December 31, 2022, respectively10,911 10,967 
Mortgage loans, at fair value under fair value option480 582 
Policy loans (including $3,427 and $3,419 at fair value under the fair value option at March 31, 2023 and December 31, 2022, respectively)4,377 4,377 
Freestanding derivative instruments1,051 1,270 
Other invested assets3,711 3,595 
Total investments66,885 65,946 
Cash and cash equivalents1,779 4,298 
Accrued investment income497 514 
Deferred acquisition costs12,760 12,923 
Reinsurance recoverable, net of allowance for credit losses of $15 and $15 at March 31, 2023 and December 31, 2022, respectively28,078 29,046 
Reinsurance recoverable on market risk benefits, at fair value238 221 
Market risk benefit assets, at fair value5,204 4,865 
Deferred income taxes, net755 320 
Other assets902 944 
Separate account assets204,366 195,906 
Total assets$321,464 $314,983 
Liabilities and Equity
Liabilities
Reserves for future policy benefits and claims payable$12,369 $12,318 
Other contract holder funds57,094 58,190 
Market risk benefit liabilities, at fair value5,560 5,662 
Funds withheld payable under reinsurance treaties (including $3,591 and $3,582 at fair value under the fair value option at March 31, 2023 and December 31, 2022, respectively)22,254 22,957 
Long-term debt2,632 2,635 
Repurchase agreements and securities lending payable1,124 1,048 
Collateral payable for derivative instruments545 689 
Freestanding derivative instruments1,510 2,065 
Notes issued by consolidated variable interest entities, at fair value under fair value option (Note 4)2,016 1,732 
Other liabilities2,527 2,403 
Separate account liabilities204,366 195,906 
Total liabilities311,997 305,605 
Commitments, Contingencies, and Guarantees (Note 16)
Equity
Series A non-cumulative preferred stock and additional paid in capital, $1.00 par value per share: 24,000 shares authorized; shares issued: 2023 - 22,000; liquidation preference $25,000 per share (See Note 20)533 — 
Common stock; 1,000,000,000 shares authorized, $0.01 par value per share and 81,044,318 and 82,690,098 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively (See Note 20)1 1 
Additional paid-in capital6,070 6,063 
Treasury stock, at cost; 13,431,514 and 11,784,813 shares at March 31, 2023 and December 31, 2022, respectively(510)(443)
Accumulated other comprehensive income (loss), net of tax expense (benefit) of $52 and $(66) at March 31, 2023 and December 31, 2022, respectively(2,308)(3,378)
Retained earnings4,852 6,403 
Total shareholders' equity8,638 8,646 
Noncontrolling interests829 732 
Total equity9,467 9,378 
Total liabilities and equity$321,464 $314,983 

(1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
2


Jackson Financial Inc.
Condensed Consolidated Income Statements
(Unaudited, in millions, except per share data)

Three Months Ended March 31,Three Months Ended March 31,
202220212023
2022(1)
RevenuesRevenuesRevenues
Fee incomeFee income$1,922 $1,816 Fee income$1,888 $2,012 
PremiumsPremiums34 34 Premiums25 37 
Net investment income720 928 
Net investment income:Net investment income:
Net investment income excluding funds withheld assetsNet investment income excluding funds withheld assets415 430 
Net investment income on funds withheld assetsNet investment income on funds withheld assets307 260 
Total net investment incomeTotal net investment income722 690 
Net gains (losses) on derivatives and investments:Net gains (losses) on derivatives and investments:
Net gains (losses) on derivatives and investmentsNet gains (losses) on derivatives and investments1,605 2,706 Net gains (losses) on derivatives and investments(2,726)(1,566)
Net gains (losses) on funds withheld reinsurance treatiesNet gains (losses) on funds withheld reinsurance treaties(673)1,028 
Total net gains (losses) on derivatives and investmentsTotal net gains (losses) on derivatives and investments(3,399)(538)
Other incomeOther income20 23 Other income15 20 
Total revenuesTotal revenues4,301 5,507 Total revenues(749)2,221 
Benefits and ExpensesBenefits and ExpensesBenefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferralsDeath, other policy benefits and change in policy reserves, net of deferrals567 283 Death, other policy benefits and change in policy reserves, net of deferrals228 300 
Interest credited on other contract holder funds, net of deferrals206 222 
(Gain) loss from updating future policy benefits cash flow assumptions, net(Gain) loss from updating future policy benefits cash flow assumptions, net14 15 
Market risk benefits (gains) losses, netMarket risk benefits (gains) losses, net(174)(1,907)
Interest credited on other contract holder funds, net of deferrals and amortizationInterest credited on other contract holder funds, net of deferrals and amortization285 197 
Interest expenseInterest expense20 6 Interest expense43 20 
Operating costs and other expenses, net of deferralsOperating costs and other expenses, net of deferrals607 598 Operating costs and other expenses, net of deferrals616 666 
Amortization of deferred acquisition and sales inducement costs515 812 
Amortization of deferred acquisition costsAmortization of deferred acquisition costs293 317 
Total benefits and expensesTotal benefits and expenses1,915 1,921 Total benefits and expenses1,305 (392)
Pretax income (loss)Pretax income (loss)2,386 3,586 Pretax income (loss)(2,054)2,613 
Income tax expense (benefit)Income tax expense (benefit)330 586 Income tax expense (benefit)(558)388 
Net income (loss)Net income (loss)2,056 3,000 Net income (loss)(1,496)2,225 
Less: Net income (loss) attributable to noncontrolling interestsLess: Net income (loss) attributable to noncontrolling interests31 68 Less: Net income (loss) attributable to noncontrolling interests1 31 
Net income (loss) attributable to Jackson Financial Inc.Net income (loss) attributable to Jackson Financial Inc.$2,025 $2,932 Net income (loss) attributable to Jackson Financial Inc.$(1,497)$2,194 
Earnings per shareEarnings per shareEarnings per share
BasicBasic$23.45 $31.03 Basic$(18.11)$25.41 
DilutedDiluted$22.51 $31.03 Diluted$(18.11)$24.39 

(1)

Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements



.













See Notes to Condensed Consolidated Financial Statements.
3


Jackson Financial Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in millions)


Three Months Ended March 31,Three Months Ended March 31,
202220212023
2022(1)
Net income (loss)Net income (loss)$2,056 $3,000 Net income (loss)$(1,496)$2,225 
Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:
Securities with no credit impairment net of tax expense (benefit) of: $(745) and $656, for the three months ended March 31, 2022 and 2021, respectively(2,697)(2,380)
Securities with credit impairment, net of tax expense (benefit) of: $4 and nil for the three months ended March 31, 2022 and 2021, respectively14 2 
Change in unrealized gains (losses) on securities with no credit impairment net of tax expense (benefit) of: $92 and $(777), for the three months ended March 31, 2023 and 2022, respectivelyChange in unrealized gains (losses) on securities with no credit impairment net of tax expense (benefit) of: $92 and $(777), for the three months ended March 31, 2023 and 2022, respectively968 (2,826)
Change in unrealized gains (losses) on securities with credit impairment, net of tax expense (benefit) of: $(2) and $4 million for the three months ended March 31, 2023 and 2022, respectivelyChange in unrealized gains (losses) on securities with credit impairment, net of tax expense (benefit) of: $(2) and $4 million for the three months ended March 31, 2023 and 2022, respectively(8)14 
Change in current discount rate related to reserve for future policy benefits, net of tax expense (benefit) of $(32) and $166 for the three months ended March 31, 2023 and 2022, respectively.Change in current discount rate related to reserve for future policy benefits, net of tax expense (benefit) of $(32) and $166 for the three months ended March 31, 2023 and 2022, respectively.(114)599 
Change in non-performance risk on market risk benefits, net of tax expense (benefit) of $60 and $202 for the three months ended March 31, 2023 and 2022, respectively.Change in non-performance risk on market risk benefits, net of tax expense (benefit) of $60 and $202 for the three months ended March 31, 2023 and 2022, respectively.224 734 
Total other comprehensive income (loss)Total other comprehensive income (loss)(2,683)(2,378)Total other comprehensive income (loss)1,070 (1,479)
Comprehensive income (loss)Comprehensive income (loss)(627)622 Comprehensive income (loss)(426)746 
Less: Comprehensive income (loss) attributable to noncontrolling interestsLess: Comprehensive income (loss) attributable to noncontrolling interests31 68 Less: Comprehensive income (loss) attributable to noncontrolling interests1 31 
Comprehensive income (loss) attributable to Jackson Financial Inc.Comprehensive income (loss) attributable to Jackson Financial Inc.$(658)$554 Comprehensive income (loss) attributable to Jackson Financial Inc.$(427)$715 

(1)

Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements






.























See Notes to Condensed Consolidated Financial Statements.
4

Jackson Financial Inc.
Condensed Consolidated Statements of Equity
(Unaudited, in millions)

Accumulated
AdditionalTreasurySharesEquityOtherTotalNon-
CommonPaid-InStockHeldCompensationComprehensiveRetainedShareholders'ControllingTotal
StockCapitalat CostIn TrustReserveIncomeEarningsEquityInterestsEquity
Balances as of December 31, 2021$1 $6,051 $(211)$— $— $1,744 $2,809 $10,394 $680 $11,074 
Net income (loss)— — — — — — 2,025 2,025 31 2,056 
Change in unrealized investment gains and losses, net of tax— — — — — (2,683)— (2,683)— (2,683)
Change in equity of noncontrolling interests— — — — — — — — 4 4 
Treasury stock acquired in connection with share repurchases— — (140)— — — — (140)— (140)
Dividends on common stock— — — — — — (52)(52)— (52)
Share based compensation— 30 — — — — — 30 — 30 
Balances as of March 31, 2022$1 $6,081 $(351)$— $— $(939)$4,782 $9,574 $715 $10,289 
Accumulated
AdditionalTreasurySharesEquityOtherTotalNon-
CommonPaid-InStockHeldCompensationComprehensiveRetainedShareholders'ControllingTotal
StockCapitalat CostIn TrustReserveIncomeEarningsEquityInterestsEquity
Balances as of December 31, 2020$1 $5,927 $— $(4)$8 $3,821 $(324)$9,429 $494 $9,923 
Net income (loss)— — — — — — 2,932 2,932 68 3,000 
Change in unrealized investment gains and losses, net of tax— — — — — (2,378)— (2,378)— (2,378)
Change in equity of noncontrolling interests— — — — — — — — 23 23 
Reserve for equity compensation plans— — — — 2 — — 2 — 2 
Balances as of March 31, 2021$1 $5,927 $— $(4)$10 $1,443 $2,608 $9,985 $585 $10,570 
Accumulated
AdditionalTreasuryOtherTotalNon-
PreferredCommonPaid-InStockComprehensiveRetainedShareholders'ControllingTotal
StockStockCapitalat CostIncomeEarningsEquityInterestsEquity
Balances as of December 31, 2022(1)
$— $1 $6,063 $(443)$(3,378)$6,403 $8,646 $732 $9,378 
Net income (loss)— — — — — (1,497)(1,497)1 (1,496)
Other comprehensive income (loss)— — — — 1,070 — 1,070 — 1,070 
Change in equity of noncontrolling interests— — — — — — — 96 96 
Dividends on common stock— — — — — (54)(54)— (54)
Purchase of treasury stock— — — (70)— — (70)— (70)
Issuance of preferred stock533 — — — — — 533 — 533 
Share based compensation— — 7 3 — — 10 — 10 
Balances as of March 31, 2023$533 $1 $6,070 $(510)$(2,308)$4,852 $8,638 $829 $9,467 
Accumulated
AdditionalTreasuryOtherTotalNon-
PreferredCommonPaid-InStockComprehensiveRetainedShareholders'ControllingTotal
StockStockCapitalat CostIncomeEarningsEquityInterestsEquity
Balances as of December 31, 2021(1)
$— $1 $6,051 $(211)$1,360 $440 $7,641 $680 $8,321 
Net income (loss)— — — — — 2,194 2,194 31 2,225 
Other comprehensive income (loss)— — — — (1,479)— (1,479)— (1,479)
Change in equity of noncontrolling interests— — — — — — — 4 4 
Purchase of treasury stock— — — (140)— — (140)— (140)
Dividends on common stock— — — — — (52)(52)— (52)
Share based compensation— — 30 — — — 30 — 30 
Balances as of March 31, 2022(1)
$— $1 $6,081 $(351)$(119)$2,582 $8,194 $715 $8,909 
(1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements.























See Notes to Condensed Consolidated Financial Statements.
5


Jackson Financial Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in millions)


Three Months Ended March 31,Three Months Ended March 31,
202220212023
2022(1)
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net income (loss)Net income (loss)$2,056$3,000Net income (loss)$(1,496)$2,225
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:
Net realized losses (gains) on investmentsNet realized losses (gains) on investments130(153)Net realized losses (gains) on investments68130
Net losses (gains) on derivativesNet losses (gains) on derivatives(707)(1,655)Net losses (gains) on derivatives2,6581,436
Net losses (gains) on funds withheld reinsurance(1,028)(898)
Net losses (gains) on funds withheld reinsurance treatiesNet losses (gains) on funds withheld reinsurance treaties673(1,028)
Net (gain) loss on market risk benefitsNet (gain) loss on market risk benefits(174)(1,907)
(Gain) loss from updating future policy benefits cash flow assumptions, net(Gain) loss from updating future policy benefits cash flow assumptions, net1415
Interest credited on other contract holder funds, grossInterest credited on other contract holder funds, gross206223Interest credited on other contract holder funds, gross285197
Mortality, expense and surrender chargesMortality, expense and surrender charges(135)(141)Mortality, expense and surrender charges(132)(135)
Amortization of discount and premium on investmentsAmortization of discount and premium on investments812Amortization of discount and premium on investments(6)8
Deferred income tax expense (benefit)Deferred income tax expense (benefit)353638Deferred income tax expense (benefit)(553)411
Share-based compensationShare-based compensation71—Share-based compensation2471
Change in:Change in:Change in:
Accrued investment incomeAccrued investment income1831Accrued investment income1718
Deferred acquisition costs and sales inducements336612
Deferred acquisition costsDeferred acquisition costs163137
Funds withheld, net of reinsuranceFunds withheld, net of reinsurance(100)(373)Funds withheld, net of reinsurance7555
Other assets and liabilities, netOther assets and liabilities, net(348)48Other assets and liabilities, net(155)(800)
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities8601,344Net cash provided by (used in) operating activities1,461833
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Sales, maturities and repayments of:Sales, maturities and repayments of:Sales, maturities and repayments of:
Debt securitiesDebt securities4,9534,616Debt securities2,9314,953
Equity securitiesEquity securities688Equity securities1576
Mortgage loansMortgage loans315366Mortgage loans469315
Purchases of:Purchases of:Purchases of:
Debt securitiesDebt securities(4,042)(3,189)Debt securities(3,325)(4,042)
Equity securitiesEquity securities(1)(151)Equity securities(2)(1)
Mortgage loansMortgage loans(452)(843)Mortgage loans(348)(452)
Settlements related to derivatives and collateral on investmentsSettlements related to derivatives and collateral on investments(950)(2,092)Settlements related to derivatives and collateral on investments(3,046)(950)
Other investing activitiesOther investing activities(31)(295)Other investing activities282(31)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(202)(1,500)Net cash provided by (used in) investing activities(2,882)(202)
(1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements.





(continued)





See Notes to Condensed Consolidated Financial Statements.

6

Jackson Financial Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited, in millions)

Three Months Ended March 31,Three Months Ended March 31,
202220212023
2022(1)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Policyholders' account balances:Policyholders' account balances:Policyholders' account balances:
DepositsDeposits$5,860$4,818Deposits$3,874$5,857
WithdrawalsWithdrawals(6,730)(6,928)Withdrawals(7,517)(6,700)
Net transfers from (to) separate accountsNet transfers from (to) separate accounts951792Net transfers from (to) separate accounts2,060951
Proceeds from (payments on) repurchase agreements and securities lendingProceeds from (payments on) repurchase agreements and securities lending(990)942Proceeds from (payments on) repurchase agreements and securities lending76(990)
Net proceeds from (payments on) Federal Home Loan Bank notesNet proceeds from (payments on) Federal Home Loan Bank notes50090Net proceeds from (payments on) Federal Home Loan Bank notes—500
Net proceeds from (payments on) debtNet proceeds from (payments on) debt(8)(4)Net proceeds from (payments on) debt(4)(8)
Dividends on common stockDividends on common stock(52)—Dividends on common stock(51)(52)
Purchase of treasury stockPurchase of treasury stock(140)—Purchase of treasury stock(70)(140)
Issuance of preferred stockIssuance of preferred stock533—
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(609)(290)Net cash provided by (used in) financing activities(1,099)(582)
Net increase (decrease) in cash, cash equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and restricted cash49(446)Net increase (decrease) in cash, cash equivalents, and restricted cash(2,520)49
Cash, cash equivalents, and restricted cash at beginning of periodCash, cash equivalents, and restricted cash at beginning of period2,6312,019Cash, cash equivalents, and restricted cash at beginning of period4,3012,631
Total cash, cash equivalents, and restricted cash at end of periodTotal cash, cash equivalents, and restricted cash at end of period$2,680$1,573Total cash, cash equivalents, and restricted cash at end of period$1,781$2,680
Supplemental cash flow informationSupplemental cash flow informationSupplemental cash flow information
Income taxes paid (received)Income taxes paid (received)$— $—
Interest paidInterest paid$9 $5Interest paid$21 $9
Non-cash investing activitiesNon-cash investing activitiesNon-cash investing activities
Debt securities acquired from exchanges, payments-in-kind, and similar transactionsDebt securities acquired from exchanges, payments-in-kind, and similar transactions$112 $86Debt securities acquired from exchanges, payments-in-kind, and similar transactions$32 $112
Other invested assets acquired from stock splits and stock distributionsOther invested assets acquired from stock splits and stock distributions$32 $99Other invested assets acquired from stock splits and stock distributions$9 $32
Non-cash financing activitiesNon-cash financing activities
Non-cash dividend equivalents on stock-based awardsNon-cash dividend equivalents on stock-based awards$(3)$—
Reconciliation to Condensed Consolidated Balance Sheets
Reconciliation to Statement of Financial PositionReconciliation to Statement of Financial Position
Cash and cash equivalentsCash and cash equivalents$2,674 $1,573Cash and cash equivalents$1,779 $2,674
Restricted cash (included in Other assets)Restricted cash (included in Other assets)6 —Restricted cash (included in Other assets)2 6
Total cash, cash equivalents, and restricted cashTotal cash, cash equivalents, and restricted cash$2,680 $1,573Total cash, cash equivalents, and restricted cash$1,781$2,680


(1)

Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements






.






See Notes to Condensed Consolidated Financial Statements.
7


Jackson Financial Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.Business and Basis of Presentation

Jackson Financial Inc. (“Jackson Financial”) along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life. Jackson Financial, domiciled in the state of Delaware in the United States (“U.S.”), was a majority-owned subsidiary of Prudential plc (“Prudential”), London, England, and was the holding company for Prudential’s U.S. operations. As described below under "Other," the Company's demerger from Prudential was completed on September 13, 2021 ("Demerger"), and the Company is no longer a majority-owned subsidiary of Prudential.stand-alone United States ("U.S.") public company.

Jackson Financial’s primary life insurance subsidiary, Jackson National Life Insurance Company and its insurance subsidiaries (“Jackson”(collectively, “Jackson”), is licensed to sell group and individual annuity products (including immediate, registered index-linked, deferred fixed, fixed index and variable annuities), and individual life insurance products, including variable universal life, in all 50 states and the District of Columbia. Jackson also participates in the institutional products market through the issuance of guaranteed investment contracts (“GICs”), funding agreements and medium-term note funding agreements. In addition to Jackson, Jackson Financial’s primary operating subsidiaries are as follows:
•PPM America, Inc. (“PPM”), is the Company’s investment management operation that manages the life insurance companies’ general account investment funds. PPM also provides investment services to other former affiliated and unaffiliated institutional clients.
•Brooke Life Insurance Company (“Brooke Life”), Jackson’s direct parent, is a life insurance company licensed to sell life insurance and annuity products in the state of Michigan.
Other wholly-owned subsidiaries whichof Jackson are wholly owned by Jackson, consist of the following:as follows:
•Life insurers: Jackson National Life Insurance Company of New York (“JNY”Jackson NY” or “JNY“); Squire Reassurance Company LLC (“Squire Re”); Squire Reassurance Company II, Inc. (“Squire Re II”); and VFL International Life Company SPC, LTD and Jackson National Life (Bermuda) LTD;
•Broker-dealer, investment management and investment advisor subsidiaries:Registered broker-dealer: Jackson National Life Distributors LLC ("(“JNLD");
•Registered investment adviser: Jackson National Asset Management LLC ("JNAM"(“JNAM“);, which manages the life insurance companies' separate account funds underlying the variable annuities products, which are sub-advised. JNAM manages and oversees those sub-advisers;
•Service provider: PGDS (US One) LLC (“PGDS”), which provides certain services to the Company and certain former affiliates; and
•Other insignificant wholly ownedwholly-owned subsidiaries.
The Company's Condensed Consolidated Financial Statements also include other insignificant partnerships, limited liability companies (“LLCs”) and other variable interest entities (“VIEs”) in which the Company is deemed the primary beneficiary.

Other

On August 6, 2021, the registration statement on Form 10 of the Company's Class A Common Stock par value $0.01 per share,was registered on a Form 10 registration statement filed with the U.S. Securities and Exchange Commission (the "SEC"), and became effective under the Securities Exchange Act of 1934, as amended. We refer to that effective Form 10 registration as the "Form 10." The Demerger transaction described in the Form 10 was consummated on September 13, 2021. As of March 31, 2022,2023, Prudential retainedhas a 19.2%7.1% remaining equity interest in the Company, after the Company repurchased a total of 2,242,516 shares of the Company’s Class A Common Stock subsequent to the Demerger, as further discussed in Note 17.

On September 9, 2021, the Company effected a 104,960.3836276-for-1 stock split of its Class A Common Stock and Class B Common Stock by way of a reclassification of its Class A Common Stock and Class B Common Stock (the “stock split”). The incremental par value of the newly issued shares was recorded with the offset to additional paid-in capital. All share and earnings per share information presented herein have been retroactively adjusted to reflect the stock split.Company.

8

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 1. Business and Basis of Presentation
On June 18, 2020, the Company’s subsidiary, Jackson, announced that it had entered into a funds withheld coinsurance agreement with Athene Life Re Ltd. (“Athene”) effective June 1, 2020 to reinsure on 100% quota share basis, a block of Jackson’s in-force fixed and fixed-index annuity product liabilities in exchange for a $1.2 billion ceding commission.

In addition, we entered into an investment agreement with Athene Life Re Ltd., pursuant to which Athene invested $500 million of capital in return for a 9.9% voting interest corresponding to a 11.1% economic interest in the Company. That investment was completed on July 17, 2020. In August 2020, the Company made a $500 million capital contribution to its subsidiary, Jackson. As of March 31, 2022, Athene retained a 8.9% voting interest and 8.9% economic interest, after the Company repurchased a total of 1,884,767 shares of Class A Common Stock and a total of 1,364,484 shares of its Class B Common Stock automatically converted to Class A Common Stock on a one-for-one basis as further discussed in Note 17.

We continue to closely monitor developments related to the COVID-19 pandemic. The COVID-19 pandemic has caused significant economic and financial turmoil both in the United StatesU.S. and around the world. These conditions could continue and could worsen inSince the future. height of the pandemic, there has been a steady resumption of activity. The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted. The Company implemented business continuity plans that already were already in place to ensure the availability of services for our customers, work at home capabilities for our employees,associates, where appropriate, and other ongoing risk management activities. The Company has had employees,associates, as needed or voluntarily, in our offices during this time, as permitted by local and state restrictions. During 2021, theThe Company rolled out a broader “return to office plan” for all employees, with many associates, inand since September 2022, now workingrequired some associates to return to the office five days a week. Associates below director level remain on an “office-centric” hybrid schedule between in-office and remote working arrangements.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, certain financial information that is normally included in annual financial statements prepared in accordance with U.S. GAAP, but not required for interim reporting purposes, has been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, as filed with the SEC on March 7, 2022,1, 2023, (the "2021"2022 Annual Report"). The condensed consolidated financial information as of December 31, 20212022, included herein, has been derived from the audited Consolidated Financial Statements in the 20212022 Annual Report.Report, but recast, as described in these notes, to reflect the adoption of the accounting standard discussed in the next paragraph.

The Company adopted Accounting Standards Update (“ASU”) 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts,” (“LDTI”) effective January 1, 2023, with a transition date of January 1, 2021. See Note 2 of the Notes to Condensed Consolidated Financial Statements for further description of the adoption of LDTI.

Certain accounting policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in the Company’s Notes to Consolidated Financial Statements for the year ended December 31, 2021 in the Company’s 20212022 Annual Report. New accounting policies adopted for LDTI are included in the Notes 7, 8, 9, 10, 11, and 12 to the Condensed Consolidated Financial Statements in this Form 10-Q.

In the opinion of management, these financial statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three months ended March 31, 2022,2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.2023. All material intercompany accounts and transactions have been eliminated in consolidation. Certain amounts in the 2021 Condensed Consolidated Financial Statements and Notes have been reclassified to conform to the 2022 presentation.

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires the use of estimates and assumptions about future events that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. Significant estimates or assumptions, as further discussed in the notes, include:
•Valuation of investments and derivative instruments, including fair values of securities deemed to be in an illiquid market and the determination of when an impairment is necessary;
•Assessments as to whether certain entities are variable interest entities,VIEs, the existence of reconsideration events and the determination of which party, if any, should consolidate the entity;
•Assumptions impacting estimated future gross profits, including policyholder behavior, mortality rates, expenses, projected hedging costs, investment returns and policy crediting rates, used in the calculation of amortization of deferred acquisition costs;
9

•Assumptions used in calculating policy reserves and liabilities including policyholder behavior, mortality rates, expenses, investment returns and policy crediting rates;
•Assumptions as to future earnings levels being sufficient to realize deferred tax benefits;
•Estimates related to expectations of credit losses on certain financial assets and off balanceoff-balance sheet exposures;
•Assumptions and estimates associated with the Company’s tax positions, including an estimate of the dividends received deduction, which impact the amount of recognized tax benefits recorded by the Company; and
•Assumptions used in calculating market risk benefits including policyholder behavior, mortality rates, and capital market assumptions;
9
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 1. Business and Basis of Presentation
•Assumptions impacting the valueexpected term used in the calculation of guaranteed benefits.amortization of deferred acquisition costs, including policyholder behavior and mortality rates.

These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors deemed appropriate. As facts and circumstances dictate, these estimates and assumptions may be adjusted. Since future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates, including those resulting from continuing changes in the economic environment, will be reflected in the consolidated financial statements in the periods the estimates are changed.

Revision of Prior Period Financial Statements

In 2022, the Company identified errors related to the classification of certain balances and amounts in the line items of the Condensed Consolidated Balance Sheets and Condensed Consolidated Income Statements. These errors resulted in the revision of balances and amounts related to deferred sales inducement assets, liabilities for certain life-contingent annuities, sub-advisor fee expenses, and other operating expense items that impacted previously issued Condensed Consolidated Financial Statements. The impact of these errors to the prior periods' Condensed Consolidated Financial Statements were not considered to be material and had no impact on shareholders' equity or net income (loss). However, to improve the consistency and comparability of the financial statements, management revised the financial statements and related disclosures in this quarterly report. See Note 22 to the Notes to Condensed Consolidated Financial Statements for details of the revisions.

2. New Accounting Standards

Changes in Accounting Principles – Adopted in Current Year

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The new guidance provides optional expedients for applying U.S. GAAP to contracts and other transactions affected by reference rate reform and is effective for contract modifications made between March 12, 2020 and December 31, 2022. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. The practical expedient allowed by this standard was elected and will beis being applied prospectively by the Company as reference rate reform unfolds. The contracts modified to date met the criteria for the practical expedient and therefore had no material impact on the Company’s consolidated financial statements.Condensed Consolidated Financial Statements. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments are effective for all entities as of December 21, 2022. The Company will continue to evaluate the impacts of reference rate reform on contract modifications and other transactions through December 31, 2022.

Changes in Accounting Principles – Issued but Not Yet Adopted2024.

In August 2018, the FASB issued ASU 2018-12, “Targeted Improvements to the Accounting for Long-DurationLong Duration Contracts,” ("LDTI"), which includesincluded changes to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. ASU No. 2018-12 isThe Company adopted LDTI effective January 1, 2023, with a transition date of January 1, 2021, using the modified retrospective transition method relating to liabilities for fiscal years beginning after December 15, 2022.traditional and limited payment contracts and deferred policy acquisition costs associated therewith, and on a retrospective basis, in relation to market risk benefits ("MRBs").

The amendmentsUnder the modified retrospective approach, the Company applied the guidance to contracts in ASU 2018-12 containforce on the transition date on the basis of their existing carrying value, using updated future cash flow assumptions, and eliminated certain related amounts in accumulated other comprehensive income (loss) (“AOCI”). Under the full retrospective transition approach, the Company applied the guidance as of the transition date, using actual historical assumption information as of contract inception, as if the accounting principle had always been applied.

Amounts reported as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 and 2022 within these Condensed Consolidated Financial Statements are accounted for and presented in accordance with U.S. GAAP reflecting the adoption of LDTI.
10
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards

LDTI contains four significant changes:

1.Market risk benefits: market risk benefits, a new term for certain contracts orcontract features that provide for potential benefits in addition to the account balance whichthat expose usthe Company to other than nominalother-than-nominal market risk (for example, certain guaranteed benefits on annuity contracts, including guaranteed minimum withdrawal benefits and guaranteed minimum death benefits on variable annuities), will beare measured at fair value. Changes in fair value will beare recorded and presented separately within the income statement, with the exception of changes in fair value due to instrument-specific creditnon-performance risk, which will beare recognized in other comprehensive income (loss) (“OCI”)”). See Note 10 for more information regarding guaranteed benefits;;

2.Deferred acquisition costs:deferred acquisition costs (“DAC”) will beare amortized on a constant-level basis, independent of profitability onof the underlying business;

3.Liability for future policy benefits: annual review and, if necessary, update of cash flow assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment insurance contracts will beis required. These liabilities will beare discounted using an upper-medium grade fixed income instrument yield which will beis updated quarterly, with related changes in the liability recognized in OCI; and

10

4.Enhanced disclosures: enhanced disclosures, including disaggregated roll-forwards of certain balance sheet accounts that provide information about actual and expected cash flows, estimates, and assumptions, as well as information about significant inputs, judgments, assumptions and methods used in measurement, will beare required. The enhanced disclosures are intended to improve the ability of users of the financial statements to evaluate the timing, amount, and uncertainty of cash flows arising from long-duration contracts.

The Company will adoptadoption of LDTI resulted in a decrease in total equity of $3.0 billion as of the standard effective January 1, 2023, with a transition date of January 1, 2021, usingcomprised of a modified retrospective approach, exceptreduction in AOCI of $0.4 billion and a reduction in retained earnings of $2.6 billion. The primary drivers for market risk benefits for which we will apply a full retrospective transition approach. Under the modified retrospective approach, the Company will apply the guidancethis impact to contracts in force on the transition date on the basis of their existing carrying value, using updated future cash flow assumptions, and eliminate certain related amounts in accumulated other comprehensive income (loss) (“AOCI”). Under the full retrospective transition approach, the Company will apply the guidance as of the earliest period presented, using actual historical experience information as of contract inception, as if the principle had always been applied.

Given the nature and extent of the required changes, the adoption of this standard is expected to have a significant impact on the Company’s consolidated financial statements and disclosures. The impacts to the financial statements at adoption are highly sensitive tototal equity markets and interest rates, which can be volatile and unpredictable. The most significant drivers of the transition adjustment are expected to be:included:

•1.changes to the measurementclassification of certain benefits currently accounted for as insurance benefits (e.g., guaranteed minimum death benefits on variable annuities) which will be classified as market risk benefits upon adoption and(“MRB”) which were remeasured at fair value as of the impacttransition date. The resulting change in the value of these benefits at the transition date, net of the related deferred tax effect, is recognized in retained earnings, with the exception of the cumulative effect of changes in non-performance risk, net of the related deferred tax effect, which is highly dependent on market conditions, including interest rates;recognized in AOCI;

•2.changes to the discount rate used to measure liabilities for future policyholder benefits which, will beunder LDTI, are remeasured each reporting period using current upper-medium grade fixed-income instrument yields, which are generally considered to be those on single-A rated public corporate debt;debt. The cumulative effect of the remeasurement of these liabilities using the transition date discount rate, net of the related deferred tax effect, is recognized in AOCI; and

•3.the removal of certain balancesshadow adjustments previously recorded in AOCI related to the impact of unrealized gains (losses) on investments that were included in the estimated gross profit amortization calculation for deferred acquisition costs, which are no longer recognized upon the adoption of LDTI.

The following table presents the effect of transition adjustments on shareholders' equity due to the adoption of LDTI (in millions):

January 1, 2021
Accumulated other
Retained earningscomprehensive income
Deferred acquisition costs$—$106
Reinsurance recoverable on market risk benefits—(34)
Reserves for future policy benefits and claims payable97 141 
Market risk benefits(2,700)(598)
Total$(2,603)$(385)

11
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards
The following table presents amounts previously reported as of December 31, 2020, to reflect the effect of the change due to the adoption of LDTI, and the adjusted amounts as of January 1, 2021 (in millions):

As PreviouslyEffect ofAs of
ReportedChanges1/1/2021
Assets
Deferred acquisition costs$13,897 $146 $14,043 
Reinsurance recoverable, net of allowance for credit losses35,270 (154)35,116 
Reinsurance recoverable on market risk benefits, at fair value— 471 471 
Market risk benefit assets, at fair value— 690 690 
Deferred income taxes, net1,058 824 1,882 
Other assets1,179 2 1,181 
Total assets$353,532 $1,979 $355,511 
Liabilities and Equity
Liabilities
Reserves for future policy benefits and claims payable$22,512 $(5,716)$16,796 
Other contract holder funds63,592 (7)63,585 
Market risk benefit liabilities, at fair value— 10,690 10,690 
Total liabilities343,609 4,967 348,576 
Equity
Accumulated other comprehensive income, net of tax expense3,821 (385)3,436 
Retained earnings(324)(2,603)(2,927)
Total equity9,923 (2,988)6,935 
Total liabilities and equity$353,532 $1,979 $355,511 

Liability for future policy benefits

For the liability for future policy benefits, the net transition adjustment is related to the difference in the discount rate used pre-transition and the discount rate at January 1, 2021. The discount rate used to measure the liability at transition was generally lower than the rates used to measure the liability prior to the adoption of LDTI. Additionally, at transition, where net premiums exceeded gross premiums at the cohort level, the Company set net premiums equal to gross premiums and recognized the resulting increase in the liability for future policy benefits as an adjustment to opening retained earnings.

The following table presents the impact of the adoption of LDTI, as of the transition date, on reserves for future policy benefits and claims payable (in millions):

PayoutClosedClosed
AnnuitiesBlock LifeBlock AnnuityTotal
Reserves for future policy benefits at December 31, 2020$1,148$5,809$5,328$12,285
Adjustment for loss contracts under the modified retrospective approach4 15 18 37 
Effect of remeasurement of liability at current discount rates143 560 997 1,700 
Reserves for future policy benefits at January 1, 2021$1,295 $6,384 $6,343 $14,022 
Other future policy benefits and claims payable2,774 
Reserves for future policy benefits and claims payable at January 1, 2021$16,796 

The following table presents the transition date reclassifications and adjustments to reserves for future policy benefits by category resulting from the adoption of LDTI (in millions):

Reserve for future policy benefits
Other (1)
Total
Reserve for future policy benefits and claims payable at December 31, 2020$12,285$10,227$22,512
Adjustments for LDTI transition1,737 (7,453)(5,716)
Reserve for future policy benefits and claims payable at January 1, 2021$14,022 $2,774 $16,796 
(1) Includes variable annuity embedded derivatives that were reclassed to market risk benefits.
12
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards

The following table presents the impact of the adoption of LDTI, as of the transition date, on Closed Block Life additional liabilities for universal life-type contracts (in millions):

Closed Block Life
Balance, December 31, 2020$1,157
Adjustment for reversal of AOCI adjustments28 
Adjustment for cumulative effect of adoption of LDTI— 
Balance, January 1, 2021$1,185 

Market risk benefits

For MRBs, the net transition adjustment relates to the measurement of certain guaranteed benefit features at fair value that were previously measured using an insurance accrual model. The measurement of these features at fair value includes use of generally lower discount rates and lower assumed future fund performance relative to their previous measurement, as well as inclusion of risk margins, all of which lead to a generally higher fair value balance relative to the carrying value prior to transition to LDTI.

The transition adjustment to AOCI for MRBs relates to the effect of changes in the non-performance risk between the contract issuance date and the transition date. The remaining difference between the carrying value of these contract features under the insurance accrual model prior to transition to LDTI and the fair value measured at transition was recorded as an adjustment to retained earnings as of the transition date.

The following table presents the impact of the adoption of LDTI, as of the transition date, on MRBs, net (in millions):

VariableOther
AnnuitiesProduct LinesTotal
Balance, December 31, 2020 - Carrying amount of MRBs under prior guidance$7,306$74 $7,380 
Adjustment for reversal of AOCI adjustments(27)(48)(75)
Cumulative effect of the changes in non-performance risk between the original contract issuance date and the transition date(743)(6)(749)
Remaining cumulative difference (exclusive of non-performance risk change) between 12/31/20 carrying amount and fair value measurement for the MRBs3,37272 3,444 
Balance, January 1, 2021 - Market risk benefits, net, at fair value$9,908$92 $10,000 

Deferred acquisition costs

For DAC, at transition to LDTI, the Company removed shadow adjustments previously recorded in AOCI for the impact of unrealized appreciation (depreciation)gains and losses that were included in the estimated gross profit amortization calculation prior to the adoption of LDTI.

The following table presents the impact of the adoption of LDTI, as of the transition date, on investments.DAC (in millions):

VariableOther
AnnuitiesProduct LinesTotal
Balance, December 31, 2020 - Deferred acquisition costs$13,725$172$13,897
Adjustment for reversal of AOCI adjustments151(5)146
Balance, January 1, 2021 - Deferred acquisition costs$13,876 $167 $14,043 


13
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards
Reinsurance recoverable

The following table presents the impact of the adoption of LDTI, as of the transition date, on reinsurance recoverable (in millions):

Total
Balance, December 31, 2020$35,270
Reclass of carrying amount of MRBs under prior guidance(407)
Adjustment for loss contracts under the modified retrospective approach—
Effect of remeasurement of liability at current discount rate253
Balance, January 1, 2021$35,116 

The following table presents the impact of the adoption of LDTI, as of the transition date, on reinsurance recoverable on market risk benefits at fair value (in millions):
VariableOther
AnnuitiesProduct LinesTotal
Balance, December 31, 2020 - Carrying amount of MRBs under prior guidance$340$67 $407
Adjustment for reversal of AOCI adjustments—(47)(47)
Cumulative difference between 12/31/2020 carrying amount and fair value measurement for the MRBs28 83 111 
Balance, January 1, 2021 - Reinsurance recoverable on market risk benefits at fair value$368 $103 $471 

TheadoptionofLDTIresulted in an increase in net income attributable to Jackson Financial Inc. of $169 million for the three months ended March 31, 2022, and also resulted in an increase in total equity of $223 million for the year endedDecember 31, 2022.

The following table presents amounts previously reported in the Consolidated Balance Sheets as of December 31, 2022, to reflect the effect of the change due to the adoption of LDTI, and the adjusted amounts as of December 31, 2022 (in millions):

As PreviouslyAs Adjusted
ReportedEffect ofAs of
December 31, 2022ChangesDecember 31, 2022
Assets
Deferred acquisition costs$13,422 $(499)$12,923 
Reinsurance recoverable, net of allowance for credit losses29,641 (595)29,046 
Reinsurance recoverable on market risk benefits, at fair value— 221 221 
Market risk benefit assets, at fair value— 4,865 4,865 
Deferred income taxes, net385 (65)320 
Other assets946 (2)944 
Total assets$311,058 $3,925 $314,983 
Liabilities and Equity
Liabilities
Reserves for future policy benefits and claims payable$14,273 $(1,955)$12,318 
Other contract holder funds58,195 (5)58,190 
Market risk benefit liabilities, at fair value— 5,662 5,662 
Total liabilities301,903 3,702 305,605 
Equity
Accumulated other comprehensive income, net of tax expense(5,481)2,103 (3,378)
Retained earnings8,283 (1,880)6,403 
Total equity9,155 223 9,378 
Total liabilities and equity$311,058 $3,925 $314,983 

14
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards

The following table present amounts previously reported in Condensed Consolidated Income Statements as revised (see Note 22- Revision and Reclassifications of Prior Period Financial Statements for further details) for the three months ended March 31, 2022, to reflect the effect of the change due to the adoption of LDTI, and the adjusted amounts (in millions):

As revisedAs Adjusted
Three Months EndedEffect ofThree Months Ended
March 31, 2022ChangesMarch 31, 2022
Revenues
Total net gains (losses) on derivatives and investments1,605 (2,143)(538)
Total revenues$4,364 $(2,143)$2,221 
Benefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferrals581 (281)300 
(Gain) loss from updating future policy benefits cash flow assumptions, net— 15 15 
Market risk benefits (gains) losses, net— (1,907)(1,907)
Interest credited on other contract holder funds, net of deferrals and amortization196 1 197 
Amortization of deferred acquisition costs515 (198)317 
Total benefits and expenses1,978 (2,370)(392)
Pretax income (loss)2,386 227 2,613 
Income tax expense (benefit)330 58 388 
Net income (loss)2,056 169 2,225 
Net income (loss) attributable to Jackson Financial Inc.$2,025 $169 $2,194 
Earnings per share
Basic$23.45 $1.96 $25.41 
Diluted$22.51 $1.88 $24.39 


The following table presents amounts previously reported in Consolidated Statements of Comprehensive Income (Loss) as revised (see Note 22- Revision and Reclassifications of Prior Period Financial Statements for further details) for the three months ended March 31, 2022, to reflect the effect of the change due to the adoption of LDTI, and the adjusted amounts (in millions):

As RevisedAs Adjusted
Three Months EndedEffect ofThree Months Ended
March 31, 2022ChangesMarch 31, 2022
Net income (loss)$2,056 $169 $2,225 
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on securities with no credit impairment, net of tax expense (benefit)(2,697)(129)(2,826)
Change in current discount rate related to reserve for future policy benefits, net of tax expense (benefit)— 599 599 
Change in non-performance risk on market risk benefits, net of tax expense (benefit)— 734 734 
Total other comprehensive income (loss)(2,683)1,204 (1,479)
Comprehensive income (loss) attributable to Jackson Financial Inc.$(658)$1,373 $715 


15
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards
The adoption of LDTI did not affect the previously reported as revised (see Note 22- Revision and Reclassifications of Prior Period Financial Statements for further details) totals for net cash flows provided by (used in) operating, investing, or financing activities, but did affect the following components of net cash flows provided by (used in) operating activities:

As RevisedAs Adjusted
Three Months EndedEffect ofThree Months Ended
March 31, 2022ChangesMarch 31, 2022
Cash flows from operating activities:
Net income (loss)$2,056 $169 $2,225 
Adjustments to reconcile net income to net cash provided by operating activities:
Net losses (gains) on derivatives(707)2,143 1,436 
Net (gain) loss on market risk benefits— (1,907)(1,907)
(Gain) loss from updating future policy benefits cash flow assumptions, net— 15 15 
Interest credited on other contract holder funds, gross196 1 197 
Deferred income tax expense (benefit)353 58 411 
Change in deferred acquisition costs336 (199)137 
Change in funds withheld, net of reinsurance(100)155 55 
Change in other assets and liabilities, net(365)(435)(800)
Total adjustments(287)(169)(456)
Net cash provided by (used in) operating activities$833 $— $833 

In accordance with its established governance framework,addition, information regarding periods ended on or before December 31, 2022 presented in the Company continues to progress with implementation efforts including determining significant accounting policy decisions, modifying actuarial valuation models, revising reporting processes, and updating internal controls over financial reporting.

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.” The new guidance allows multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. If multiple hedged layers are designated, an entity is required to perform an analysis to support its expectation that the aggregate amount of the hedged layers is anticipated to be outstanding for the designated hedge periods. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. An entity may designate multiple hedged layers of a single closed portfolio solely on a prospective basis. All entities are required to apply the amendments related to hedge basis adjustments under the portfolio layer method, except for those related to disclosures, on a modified retrospective basis by means of a cumulative-effect adjustmentfollowing Notes to the opening balanceCondensed Consolidated Financial Statements has been recast to reflect the adoption of retained earnings on the initial application date. Early adoption is permitted. The Company is evaluating the impact of the new guidanceLDTI: Notes 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 15, 19, 20, 21, and does not plan to early adopt.22.

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The new guidance eliminates the accounting guidance for troubled debt restructurings by creditors, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan. The amendments also enhance disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. New guidance for vintage disclosures requires that current-period gross write-offs be disclosed by year of origination for financing receivables and net investments in leases that fall within scope of the current expected credit loss model. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Updates should be applied prospectively. However, an entity has the option to apply the modified retrospective method related to the recognition and measurements of troubled debt restructurings. Early adoption is permitted. TheEffective January 1, 2023, the Company is evaluatingadopted ASU 2022-02, which did not have a material impact to the impact of the new guidance and does not plan to early adopt.
11

Condensed Consolidated Financial Statements.

3. Segment Information

The Company has 3three reportable segments consisting of Retail Annuities, Institutional Products, Closed Life and Annuity Block, plus its Corporate and Other segment. These segments reflect the manner by whichhow the Company’s chief operating decision maker views and manages the business. The following is a brief description of the Company’s reportable segments.

Retail Annuities

The Company’s Retail Annuities segment offers a variety of retirement income and savings products through its diverse suite of products, consisting primarily of variable annuities, fixed index annuities, fixed annuities, immediate payout annuities, and registered index-linked annuities ("RILA"). These products are distributed through various wirehouses, insurance brokers and independent broker-dealers, as well as through banks and financial institutions, primarily to high nethigh-net worth investors and the mass and affluent markets.

16
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information
The Company’s variable annuities represent an attractive option for retirees and soon-to-be retirees, providing access to equity market appreciation and add-on benefits, including guaranteed lifetime income. A fixed index annuity is designed for investors who desire principal protection with the opportunity to participate in capped upside investment returns linked to a reference market index. The Company also provides access to guaranteed lifetime income as an add-on benefit. A fixed annuity is a guaranteed product designed to build wealth without market exposure, through a crediting rate that is likely to be superior to interest rates offered from banks or money market funds. A RILA product offers customers exposure to market returns through market index-linked investment options, subject to a cap, and offers a variety of guarantees designed to modify or limit losses.

The financial results of the variable annuity business within the Company’s Retail Annuities segment are largely dependent on the performance of the contract holder account value, which impacts both the level of fees collected and the benefits paid to the contract holder. The financial results of the Company’s fixed annuities, including the fixed portion of itsoption on variable annuity,annuities, RILA and fixed index annuities, are largely dependent on the Company’s ability to earn a spread between earned investment rates on general account assets and the interest credited to contract holders.

Institutional Products

The Company’s Institutional Products consist of traditional Guaranteed Investment Contracts (GICs)("GICs"), funding agreements (including agreements issued in conjunction with the Company’s participation in the U.S. Federal Home Loan Bank ("FHLB") program) and medium-term note funding agreements. The Company’s GIC products are marketed to defined contribution pension and profit-sharing retirement plans. Funding agreements are marketed to institutional investors, including corporate cash accounts and securities lending funds, as well as money market funds, and are issued to the FHLB in connection with its program.

The financial results of the Company’s institutional products business are primarily dependent on the Company’s ability to earn spreadsa spread between earned investment rates on general account assets.assets and the interest credited on GICs and funding agreements.

Closed Life and Annuity Blocks

The Company's Closed Life and Annuity Blocks segment is primarily composed of blocks of business that have been acquired since 2004. TheThis segment includes various protection products, primarily whole life, universal life, variable universal life, and term life insurance products, as well as fixed, fixed index, and payout annuities. The Closed Life and Annuity Blocks segment also includes a block of group payout annuities that we assumed from John Hancock Life Insurance Company (USA) (“John Hancock”) and John Hancock Life Insurance Company of New York (“John Hancock NY”) through reinsurance transactions in 2018 and 2019, respectively. The Company historically offered traditional and interest-sensitive life insurance products but discontinued new sales of life insurance products in 2012, as we believe opportunistically acquiring mature blocks of life insurance policies iswas a more efficient means of diversifying our in-force business than selling new life insurance products.

12

The profitability of the Company’s Closed Life and Annuity Blocks segment is largely driven by its historical ability to appropriately price its products and purchase appropriately priced blocks of business, as realized through underwriting, expense and net gains (losses) on derivatives and investments, and the ability to earn an assumed rate of return on the assets supporting that business.

Corporate and Other

The Company’s Corporate and Other segment primarily consists of the operations of its investment management subsidiary, PPM, VIE’s, and unallocated corporate income and expenses. The Corporate and Other segment also includes certain eliminations and consolidation adjustments.

17
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information
Segment Performance Measurement

Segment operating revenues and pretax adjusted operating earnings are non-GAAP financial measures that management believes are critical to the evaluation of the financial performance of the Company’s segments. The Company uses the same accounting policies and procedures to measure segment pretax adjusted operating earnings as used in its reporting of consolidated net income. Its primary measure is pretax adjusted operating earnings, which is defined as net income recorded in accordance with U.S. GAAP, excluding certain items that may be highly variable from period to period due to accounting treatment under U.S. GAAP, or that are non-recurring in nature, as well as certain other revenues and expenses whichthat are not considered to drive underlying performance. Operating revenues and pretax adjusted operating earnings should not be used as a substitute for revenues and net income as calculated in accordance with U.S. GAAP.

Pretax adjusted operating earnings equals net income adjusted to eliminate the impact of the following items:

1.Guaranteed Benefits andNet Hedging Results: theComprised of: (i) fees attributed to guaranteed benefits, the associated movements in optional guaranteed benefit liabilities and related claims and benefit payments are excluded from Adjusted Operating Earnings, as we believe this approach appropriately removes the impact to both revenue and related expenses associated with the guaranteed benefit features that are offered for certain of our variable annuities and fixed index annuities and gives investors a better picture of what is driving our underlying performance. This adjustment includes the following components:

•Fees Attributable to Guarantee Benefits: fees earned in conjunction with guaranteed benefit features offered for certain of our variable annuities and fixed index annuities are set at a level intended to mitigate the cost of hedging and funding the liabilities associated with such guaranteed benefit features. The full amount of the fees attributable to guaranteed benefit features have been excluded from Adjusted Operating Earnings as the related net movements in freestanding derivatives and net reserve and embedded derivative movements, as described below, have been excluded from Adjusted Operating Earnings. This adjusted presentation of our earnings is intended to directly align revenue and related expenses associated with the guaranteed benefit features;

•Net Movement in Freestanding Derivatives, except earned income (periodic settlements and changes in settlement accruals) on derivatives that are hedges of investments, but do not qualify for hedge accounting treatment:benefits; (ii) changes in the fair value of our freestanding derivatives used to manage the risk associated with our lifemarket risk benefits and annuityother guaranteed benefit features; (iii) the movements in reserves, including those arising from themarket risk benefits, guaranteed benefit features offeredaccounted for certainas embedded derivative instruments, and related claims and benefit payments; (iv) amortization of our variable annuities and fixed index annuities. Net movements in freestanding derivatives have beenthe balance of unamortized deferred acquisition costs at the date of transition to current LDTI accounting guidance on January 1, 2021 associated with items excluded from Adjusted Operating Earningspretax adjusted operating earnings prior to transition; and (v) the impact on the valuation of Guaranteed Benefits and Net Hedging Results arising from changes in underlying actuarial assumptions. These items are excluded from pretax adjusted operating earnings as the market value of these derivativesthey may vary significantly from period to period as a result ofdue to near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business;

13

•business. We believe this approach appropriately removes the impact to both revenue and related expenses associated with Guaranteed Benefits and Net ReserveHedging Results and Embedded Derivative Movements: changes inprovides investors a better picture of the valuation of certain life and annuity reserves, a portion of which are accounted for as embedded derivative instruments, and which are primarily composed of variable and fixed index annuity reserves, including those arising from the guaranteed benefit features offered for certaindrivers of our variable annuities. Net reserve and embedded derivative movements have been excluded from Adjusted Operating Earnings as the carrying values of these derivatives may vary significantly from period to period as the result of near-term market conditions and policyholder behavior-related inputs and therefore are not directly comparable or reflective of the underlying performance of our business. Movements in reserves attributable to the current period claims and benefit payments in excess of a customer’s account value on these policies are also excluded from Adjusted Operating Earnings as these benefit payments are affected by near-term market conditions and policyholder behavior-related inputs and therefore may vary significantly from period to period;

•DAC and Deferred Sales Inducements ("DSI") Impact: amortization of deferred acquisition costs and deferred sales inducements associated with the items excluded from Adjusted Operating Earnings;

•Assumption changes: the impact on the valuation of Net Derivative and Reserve Movements, including amortization on DAC, arising from changes in underlying actuarial assumptions on an annual basis;performance.

2.Net Realized Investment Gains and Losses including change in fair value of funds withheld embedded derivative: Losses:Realized Comprised of: (i) realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio, as well asportfolio; and (ii) impairments of securities, after adjustment for the non-credit component of the impairment chargescharges. These items are excluded from pretax adjusted operating earnings as they may vary significantly from period to period due to near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business. We believe this approach provides investors a better picture of the drivers of our underlying performance.

3.    Change in Value of Funds Withheld Embedded Derivative and Net investment income on funds withheld assets: Comprised of: (i) the change in fair value of funds withheld embedded derivative related to the Athene Reinsurance Transaction;

3.Loss on Athene Reinsurance Transaction: includes contractual ceding commission, cost of reinsurance write-offderivatives; and DAC and DSI write-off related to the Athene Reinsurance Transaction;

4.Net investment income on funds withheld assets: includes(ii) net investment income on funds withheld assets related to funds withheld reinsurance transactions;transactions. These items are excluded from pretax adjusted operating earnings as they are not reflective of the underlying performance of our business. We believe this approach provides investors a better picture of the drivers of our underlying performance.

5.4.    Other itemsitems: : one-time or other non-recurring items, such as costs relating to the Demerger and our separation from Prudential,Comprised of: (i) the impact of discontinued operations and investments that are consolidated onin our financial statements due to U.S. GAAP accounting requirements, such as our investments in CLOs,collateralized loan obligations ("CLOs"), but for which the consolidation effects are not alignedconsistent with our economic interest or exposure to those entities.entities, and (ii) one-time or other non-recurring items. These items are excluded from pretax adjusted operating earnings as they are not reflective of the underlying performance of our business. We believe this approach provides investors a better picture of the drivers of our underlying performance.

Operating income taxes are calculated using the prevailing corporate federal income tax rate of 21% while taking into account any items recognized differently in our financial statements and federal income tax returns, including the dividends received deduction and other tax credits. For interim reporting periods, the company uses an estimated annual effective tax rate in computing its tax provision including consideration of discrete items.5.    Income taxes.


1418

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information
Set forth in the tables below is certain information with respect to the Company’s segments, as described above (in millions)millions, recast for the adoption of LDTI):
Three Months Ended March 31, 2022Retail AnnuitiesClosed Life
and Annuity
Blocks		Institutional
Products		Corporate and
 Other		Total
Consolidated
Three Months Ended March 31, 2023Three Months Ended March 31, 2023Retail AnnuitiesInstitutional
Products		Closed Life
and Annuity
Blocks		Corporate and
 Other		Total
Consolidated
Operating RevenuesOperating RevenuesOperating Revenues
Fee incomeFee income$1,016$121$—$18$1,155Fee income$975$—$117$13$1,105
PremiumsPremiums—37——37Premiums4—23—27
Net investment incomeNet investment income1181966453431Net investment income13610217722437
Income on operating derivatives1115(1)1035
Income (loss) on operating derivativesIncome (loss) on operating derivatives(10)(12)(10)(4)(36)
Other incomeOther income118—120Other income9—4215
Total Operating Revenues Total Operating Revenues1,15637763821,678 Total Operating Revenues1,11490311331,548
Operating Benefits and ExpensesOperating Benefits and ExpensesOperating Benefits and Expenses
Death, other policy benefits and change in policy
reserves, net of deferrals		Death, other policy benefits and change in policy
reserves, net of deferrals		16242——258Death, other policy benefits and change in policy
reserves, net of deferrals		(15)—163—148
Interest credited on other contract holder funds, net
of deferrals		689939—206
Interest credited on other contract holder funds, net
of deferrals and amortization		Interest credited on other contract holder funds, net
of deferrals and amortization		9876111—285
(Gain) loss from updating future policy benefits cash flow assumptions, net(Gain) loss from updating future policy benefits cash flow assumptions, net(2)—16—14
Interest expenseInterest expense5—1520Interest expense174—2243
Operating costs and other expenses, net of deferralsOperating costs and other expenses, net of deferrals50440161606Operating costs and other expenses, net of deferrals52213954616
Deferred acquisition and sales inducements
amortization		1574—9170
Amortization of deferred acquisition costsAmortization of deferred acquisition costs138—2—140
Total Operating Benefits and ExpensesTotal Operating Benefits and Expenses75038540851,260Total Operating Benefits and Expenses75881331761,246
Pretax Adjusted Operating EarningsPretax Adjusted Operating Earnings$406$(8)$23$(3)$418Pretax Adjusted Operating Earnings$356$9$(20)$(43)$302

Three Months Ended March 31, 2021Retail AnnuitiesClosed Life
and Annuity
Blocks		Institutional
Products		Corporate and
 Other		Total
Consolidated
Operating Revenues
Fee income$995 $125 $— $21 $1,141 
Premiums— 38 — — 38 
Net investment income205 257 64 12 538 
Income on operating derivatives14 20 — 4 38 
Other income12 9 — 2 23 
     Total Operating Revenues1,226 449 64 39 1,778 
Operating Benefits and Expenses
Death, other policy benefits and change in policy
    reserves, net of deferrals		6 221 — — 227 
Interest credited on other contract holder funds, net
    of deferrals		67 103 52 — 222 
Interest expense5 — 1 — 6 
Operating costs and other expenses, net of deferrals476 41 1 56 574 
Deferred acquisition and sales inducements
    amortization		104 5 — 7 116 
Total Operating Benefits and Expenses658 370 54 63 1,145 
Pretax Adjusted Operating Earnings$568 $79 $10 $(24)$633 

Three Months Ended March 31, 2022Retail AnnuitiesInstitutional
Products		Closed Life
and Annuity
Blocks		Corporate and
 Other		Total
Consolidated
Operating Revenues
Fee income$1,108 $— $121 $16 $1,245 
Premiums3 — 37 — 40 
Net investment income114 64 189 34 401 
Income (loss) on operating derivatives11 (1)15 10 35 
Other income11 — 8 1 20 
     Total Operating Revenues1,247 63 370 61 1,741 
Operating Benefits and Expenses
Death, other policy benefits and change in policy
    reserves, net of deferrals		32 — 225 — 257 
Interest credited on other contract holder funds, net
    of deferrals and amortization		57 39 101 — 197 
(Gain) loss from updating future policy benefits cash flow assumptions, net(3)— 18 — 15 
Interest expense5 — — 15 20 
Operating costs and other expenses, net of deferrals592 1 32 40 665 
Amortization of deferred acquisition costs139 — 3 — 142 
Total Operating Benefits and Expenses822 40 379 55 1,296 
Pretax Adjusted Operating Earnings$425 $23 $(9)$6 $445 
Intersegment eliminations in the above tables are included in the Corporate and Other segment. These include the elimination of investment income, between Retail Annuities and the Corporate and Other segments, as well as the elimination from fee income and investment income of investment fees paid by Jackson to its affiliate PPM, which was $14were $18 million and $15$16 million for the three months ended March 31, 20222023 and 20212022, respectively.

1519
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information

The following table summarizes the reconciling items from the non-GAAP measure of operating revenues to the U.S. GAAP measure of total revenues attributable to the Company (in millions)millions, recast for the adoption of LDTI):

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Total operating revenuesTotal operating revenues$1,678 $1,778 Total operating revenues$1,548 $1,741 
Fees attributed to variable annuity benefit reserves764 672 
Fees attributed to guarantee benefit reservesFees attributed to guarantee benefit reserves780 764 
Net gains (losses) on derivatives and investmentsNet gains (losses) on derivatives and investments1,570 2,667 Net gains (losses) on derivatives and investments(3,362)(573)
Net investment income (loss) related to noncontrolling interestsNet investment income (loss) related to noncontrolling interests31 68 Net investment income (loss) related to noncontrolling interests1 31 
Consolidated investmentsConsolidated investments(2)31 Consolidated investments(23)(2)
Net investment income on funds withheld assetsNet investment income on funds withheld assets260 291 Net investment income on funds withheld assets307 260 
Total revenues (1)
Total revenues (1)
$4,301 $5,507 
Total revenues (1)
$(749)$2,221 
(1) Substantially all of the Company's revenues originated in the United States. There were no individual customers that exceeded 10% of total revenues.


The following table summarizes the reconciling items from the non-GAAP measure of operating benefits and expenses to the U.S. GAAP measure of total benefits and expenses attributable to the Company (in millions)millions, recast for the adoption of LDTI):
Three Months Ended March 31,
20232022
Total operating benefits and expenses$1,246 $1,296 
Net (gain) loss on market risk benefits(174)(1,907)
Benefits attributed to guaranteed benefit features80 44 
Amortization of DAC related to non-operating revenues and expenses153 173 
Other items— 2 
Total benefits and expenses$1,305 $(392)

Three Months Ended March 31,
20222021
Total operating benefits and expenses$1,260 $1,145 
Benefits attributed to variable annuity benefit reserves39 38 
Amortization of DAC and DSI related to non-operating revenues and expenses345 696 
SOP 03-1 reserve movements269 18 
Other items2 24 
Total benefits and expenses$1,915 $1,921 

The following table summarizes the reconciling items, net of deferred acquisition costs and deferred sales inducements, from the non-GAAP measure of pretax adjusted operating earnings to the U.S. GAAP measure of net income attributable to the Company (in millions)millions, recast for the adoption of LDTI):

Three Months Ended March 31,
20222021
Pretax adjusted operating earnings$418 $633 
Non-operating adjustments (income) loss:
Guaranteed benefits and hedging results:
Fees attributable to guarantee benefit reserves764 672 
Net movement in freestanding derivatives(1,476)(3,031)
Net reserve and embedded derivative movements1,839 4,592 
DAC and DSI impact(345)(696)
Assumption changes— — 
Total guaranteed benefits and hedging results782 1,537 
Net realized investment gains (losses) including change in fair value of funds withheld embedded derivative898 1,050 
Net investment income on funds withheld assets260 291 
Other items(3)7 
Pretax income (loss) attributable to Jackson Financial Inc.2,355 3,518 
Income tax expense (benefit)330 586 
Net income (loss) attributable to Jackson Financial, Inc.$2,025 $2,932 
16

Three Months Ended March 31,
20232022
Pretax adjusted operating earnings$302 $445 
Non-operating adjustments income (loss):
Fees attributable to guarantee benefit reserves780 764 
Net movement in freestanding derivatives(2,512)(1,476)
Market risk benefits gains (losses), net174 1,907 
Net reserve and embedded derivative movements(189)(40)
Amortization of DAC associated with non-operating items(153)(173)
Guaranteed benefits and net hedging results(1,900)982 
Net realized investment gains (losses)(68)(130)
Net realized investment gains (losses) on funds withheld assets(673)1,028 
Net investment income on funds withheld assets307 260 
Other items(23)(3)
Pretax income (loss) attributable to Jackson Financial Inc.(2,055)2,582 
Income tax expense (benefit)(558)388 
Net income (loss) attributable to Jackson Financial Inc.$(1,497)$2,194 

20
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
4. Investments

Investments are comprised primarily of fixed-income securities and loans, primarily publicly-traded corporate and government bonds, asset-backed securities and mortgage loans. Asset-backed securities include mortgage-backed and other structured securities. The Company generates the majority of its general account deposits from interest-sensitive individual annuity contracts, life insurance products and institutional products on which it has committed to pay a declared rate of interest. The Company's strategy of investing in fixed-income securities and loans aims to ensure matching of the asset yield with the amounts credited to the interest-sensitive liabilities and to earn a stable return on its investments.

Debt Securities

The following table sets forth the composition of the fair value of debt securities at March 31, 20222023 and December 31, 2021,2022, classified by rating categories as assigned by nationally recognized statistical rating organizations (“NRSRO”), the National Association of Insurance Commissioners (“NAIC”), or if not rated by such organizations, the Company’s investment advisors. The Company uses the second lowest rating by an NRSRO when NRSRO ratings are not equivalent and, for purposes of the table, if not otherwise rated by a NRSRO, the NAIC rating of a security is converted to an equivalent NRSRO-style rating. At March 31, 20222023 and December 31, 2021,2022, the carrying value of investments rated by the Company’s consolidated investment advisor totaled $111$492 million and $13$32 million, respectively.

Percent of Total Debt
Securities Carrying Value		Percent of Total Debt
Securities Carrying Value
March 31, 2022December 31, 2021March 31, 2023December 31, 2022
Investment RatingInvestment RatingInvestment Rating
AAAAAA12.2%14.5%AAA15.4%17.9%
AAAA9.9%9.6%AA10.5%8.2%
AA29.4%28.5%A30.3%29.9%
BBBBBB41.4%40.9%BBB36.6%36.4%
Investment gradeInvestment grade92.9%93.5%Investment grade92.8%92.4%
BBBB3.9%3.6%BB3.6%3.9%
B and belowB and below3.2%2.9%B and below3.6%3.7%
Below investment gradeBelow investment grade7.1%6.5%Below investment grade7.2%7.6%
Total debt securitiesTotal debt securities100.0%100.0%Total debt securities100.0%100.0%

At March 31, 2022, based on ratings by NRSROs,2023, of the total carrying value of debt securities in an unrealized loss position, 74%78% were investment grade, 4%2% were below investment grade and 22%20% were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 19%21% of the aggregate gross unrealized losses on available-for-sale debt securities.

At December 31, 2021, based on ratings by NRSROs,2022, of the total carrying value of debt securities in an unrealized loss position, 76%78% were investment grade, 2% were below investment grade and 22%20% were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 16%21% of the aggregate gross unrealized losses on available for sale debt securities.

Corporate securities in an unrealized loss position were diversified across industries. As of March 31, 2022,2023, the industries accounting for the largest percentage of unrealized losses included healthcare (12%utility (16% of corporate gross unrealized losses) and financial services (11%healthcare (10%). The largest unrealized loss related to a single corporate obligor was $40$51 million at March 31, 2022.2023.

As of December 31, 2021,2022, the industries accounting for the largest percentage of unrealized losses included financial servicesutility (16% of corporate gross unrealized losses) and consumer goods (15%healthcare (10%). The largest unrealized loss related to a single corporate obligor was $16$57 million at December 31, 2021.2022.


17

At March 31, 20222023 and December 31, 2021,2022, the amortized cost, allowance for credit loss ("ACL"), gross unrealized gains and losses, and fair value and ACL of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions):

AllowanceGrossGross
AmortizedforUnrealizedUnrealizedFair
March 31, 2022
Cost (1)
Credit LossGainsLossesValue
U.S. government securities$3,730 $— $20 $479 $3,271 
Other government securities1,563 6 51 65 1,543 
Public utilities5,912 — 226 150 5,988 
Corporate securities29,801 22 474 1,375 28,878 
Residential mortgage-backed484 2 35 19 498 
Commercial mortgage-backed1,724 — 6 44 1,686 
Other asset-backed securities6,905 2 34 130 6,807 
Total debt securities$50,119 $32 $846 $2,262 $48,671 
AllowanceGrossGross
AmortizedforUnrealizedUnrealizedFair
December 31, 2021
Cost (1)
Credit LossGainsLossesValue
U.S. government securities$4,525 $— $97 $301 $4,321 
Other government securities1,489 — 147 17 1,619 
Public utilities6,069 — 671 25 6,715 
Corporate securities29,701 — 1,682 237 31,146 
Residential mortgage-backed528 2 46 3 569 
Commercial mortgage-backed1,968 — 76 6 2,038 
Other asset-backed securities6,926 7 71 23 6,967 
Total debt securities$51,206 $9 $2,790 $612 $53,375 
(1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities.
21
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
AllowanceGrossGross
AmortizedforUnrealizedUnrealizedFair
March 31, 2023
Cost (1)
Credit LossGainsLossesValue
U.S. government securities$5,775 $— $1 $883 $4,893 
Other government securities1,712 3 2 204 1,507 
Public utilities6,008 — 38 574 5,472 
Corporate securities29,679 21 112 3,086 26,684 
Residential mortgage-backed466 5 14 47 428 
Commercial mortgage-backed1,768 — — 174 1,594 
Other asset-backed securities5,974 — 9 431 5,552 
Total debt securities$51,382 $29 $176 $5,399 $46,130 
AllowanceGrossGross
AmortizedforUnrealizedUnrealizedFair
December 31, 2022
Cost (1)
Credit LossGainsLossesValue
U.S. government securities$6,192 $— $1 $1,008 $5,185 
Other government securities1,719 2 1 251 1,467 
Public utilities5,893 — 27 695 5,225 
Corporate securities28,803 15 59 3,701 25,146 
Residential mortgage-backed510 6 19 59 464 
Commercial mortgage-backed1,821 — — 183 1,638 
Other asset-backed securities6,133 — 8 504 5,637 
Total debt securities$51,071 $23 $115 $6,401 $44,762 
(1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities.

The amortized cost, allowance for credit losses,ACL, gross unrealized gains and losses, and fair value of debt securities at March 31, 2022,2023, by contractual maturity, are shown below (in millions). Actual maturities may differ from contractual maturities where securities can be called or prepaid with or without early redemption penalties.

AllowanceGrossGrossAllowanceGrossGross
AmortizedforUnrealizedUnrealizedFairAmortizedforUnrealizedUnrealizedFair
Cost (1)
Credit LossGainsLossesValue
Cost (1)
Credit LossGainsLossesValue
Due in 1 year or lessDue in 1 year or less$946 $— $7 $1 $952 Due in 1 year or less$2,165 $1 $— $9 $2,155 
Due after 1 year through 5 yearsDue after 1 year through 5 years8,564 1 89 98 8,554 Due after 1 year through 5 years10,263 2 19 369 9,911 
Due after 5 years through 10 yearsDue after 5 years through 10 years14,129 21 172 602 13,678 Due after 5 years through 10 years14,000 4 60 1,279 12,777 
Due after 10 years through 20 yearsDue after 10 years through 20 years9,373 3 323 589 9,104 Due after 10 years through 20 years8,980 3 66 1,335 7,708 
Due after 20 yearsDue after 20 years7,994 3 180 779 7,392 Due after 20 years7,766 14 8 1,755 6,005 
Residential mortgage-backedResidential mortgage-backed484 2 35 19 498 Residential mortgage-backed466 5 14 47 428 
Commercial mortgage-backedCommercial mortgage-backed1,724 — 6 44 1,686 Commercial mortgage-backed1,768 — — 174 1,594 
Other asset-backed securitiesOther asset-backed securities6,905 2 34 130 6,807 Other asset-backed securities5,974 — 9 431 5,552 
TotalTotal$50,119 $32 $846 $2,262 $48,671 Total$51,382 $29 $176 $5,399 $46,130 
(1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities.

Securities with a carrying value of $106 million and $117 million at March 31, 2022 and December 31, 2021, respectively, were on deposit with regulatory authorities, asAs required by law in various states in which business is conducted.conducted, securities with a carrying value of $94 million and $90 million at March 31, 2023 and December 31, 2022, respectively, were on deposit with regulatory authorities.

1822

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
Residential mortgage-backed securities (“RMBS”) include certain RMBS that are collateralized by residential mortgage loans and are neither explicitlyexpressly nor implicitly guaranteed by U.S. government agencies (“non-agency RMBS”). The Company’s non-agency RMBS include investments in securities backed by prime, Alt-A, and subprime loans, as follows (in millions):

AllowanceGrossGrossAllowanceGrossGross
AmortizedforUnrealizedUnrealizedFairAmortizedforUnrealizedUnrealizedFair
March 31, 2022
Cost (1)
Credit LossGainsLossesValue
March 31, 2023March 31, 2023
Cost (1)
Credit LossGainsLossesValue
PrimePrime$172 $1 $5 $9 $167 Prime$197 $3 $1 $24 $171 
Alt-AAlt-A86 1 16 2 99 Alt-A65 2 7 10 60 
SubprimeSubprime35 — 12 — 47 Subprime16 — 6 — 22 
Total non-agency RMBSTotal non-agency RMBS$293 $2 $33 $11 $313 Total non-agency RMBS$278 $5 $14 $34 $253 
AllowanceGrossGrossAllowanceGrossGross
AmortizedforUnrealizedUnrealizedFairAmortizedforUnrealizedUnrealizedFair
December 31, 2021
Cost (1)
Credit LossGainsLossesValue
December 31, 2022December 31, 2022
Cost (1)
Credit LossGainsLossesValue
PrimePrime$228 $1 $10 $2 $235 Prime$206 $4 $2 $30 $174 
Alt-AAlt-A94 1 21 — 114 Alt-A84 2 7 10 79 
SubprimeSubprime39 — 13 — 52 Subprime27 — 10 1 36 
Total non-agency RMBSTotal non-agency RMBS$361 $2 $44 $2 $401 Total non-agency RMBS$317 $6 $19 $41 $289 
(1) Amortized cost, apart from carrying value for securities carried at fair value under the fair value option and trading securities.
(1) Amortized cost, apart from carrying value for securities carried at fair value under the fair value option and trading securities.
(1) Amortized cost, apart from carrying value for securities carried at fair value under the fair value option and trading securities.

The Company defines its exposure to non-agency residential mortgage loans as follows:

•Prime loan-backed securities are collateralized by mortgage loans made to the highest rated borrowers.
•Alt-A loan-backed securities are collateralized by mortgage loans made to borrowers who lack credit documentation or necessary requirements to obtain prime borrower rates.
•Subprime loan-backed securities are collateralized by mortgage loans made to borrowers that have a FICO score of 660 or lower.

1923

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
The following table summarizes the number of securities, fair value and the gross unrealized losses of debt securities, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position (dollars in millions):

March 31, 2022December 31, 2021March 31, 2023December 31, 2022
Less than 12 monthsLess than 12 monthsLess than 12 monthsLess than 12 months
GrossFair
Value		GrossFair
Value		GrossFair
Value		GrossFair
Value
Unrealized# ofUnrealized# ofUnrealized# ofUnrealized# of
LossessecuritiesLossessecuritiesLossessecuritiesLossessecurities
U.S. government securitiesU.S. government securities$80 $431 18 $2 $107 16 U.S. government securities$144 $1,913 28 $339 $2,815 40 
Other government securitiesOther government securities65 538 57 17 252 23 Other government securities60 971 108 174 1,258 143 
Public utilitiesPublic utilities109 2,037 240 17 721 93 Public utilities230 2,851 323 508 4,279 490 
Corporate securitiesCorporate securities1,013 13,488 1,673 180 6,343 728 Corporate securities477 9,181 1,282 2,087 17,068 2,323 
Residential mortgage-backedResidential mortgage-backed15 266 194 3 174 109 Residential mortgage-backed12 126 88 43 279 196 
Commercial mortgage-backedCommercial mortgage-backed35 1,105 156 5 314 37 Commercial mortgage-backed32 621 78 138 1,421 177 
Other asset-backed securitiesOther asset-backed securities127 4,198 490 22 3,224 338 Other asset-backed securities79 1,656 156 282 3,485 417 
Total temporarily impaired securitiesTotal temporarily impaired securities$1,444 $22,063 2,828 $246 $11,135 1,344 Total temporarily impaired securities$1,034 $17,319 2,063 $3,571 $30,605 3,786 
12 months or longer12 months or longer12 months or longer12 months or longer
GrossFair
Value		GrossFair
Value		GrossFair
Value		GrossFair
Value
Unrealized# ofUnrealized# ofUnrealized# ofUnrealized# of
LossessecuritiesLossessecuritiesLossessecuritiesLossessecurities
U.S. government securitiesU.S. government securities$399 $1,982 9 $299 $3,190 7 U.S. government securities$739 $1,706 9 $669 $1,386 6 
Other government securitiesOther government securities— 9 4 — 4 2 Other government securities144 482 57 77 177 23 
Public utilitiesPublic utilities41 198 28 7 99 8 Public utilities344 1,957 251 187 520 87 
Corporate securitiesCorporate securities362 1,967 223 58 661 69 Corporate securities2,609 12,136 1,550 1,614 4,601 644 
Residential mortgage-backedResidential mortgage-backed4 45 38 — 11 12 Residential mortgage-backed35 195 187 16 81 94 
Commercial mortgage-backedCommercial mortgage-backed9 77 6 1 30 3 Commercial mortgage-backed142 947 148 45 192 31 
Other asset-backed securitiesOther asset-backed securities3 47 8 1 11 3 Other asset-backed securities352 2,977 394 222 1,551 171 
Total temporarily impaired securitiesTotal temporarily impaired securities$818 $4,325 316 $366 $4,006 104 Total temporarily impaired securities$4,365 $20,400 2,596 $2,830 $8,508 1,056 
TotalTotalTotalTotal
GrossFair
Value		GrossFair
Value		GrossGross
Unrealized# ofUnrealized# ofUnrealizedFair# ofUnrealizedFair# of
LossessecuritiesLossessecuritiesLossesValue
securities (1)
LossesValue
securities (1)
U.S. government securitiesU.S. government securities$479 $2,413 23 $301 $3,297 23 U.S. government securities$883 $3,619 36 $1,008 $4,201 42 
Other government securitiesOther government securities65 547 60 17 256 25 Other government securities204 1,453 161 251 1,435 162 
Public utilitiesPublic utilities150 2,235 261 24 820 101 Public utilities574 4,808 551 695 4,799 562 
Corporate securities (1)
Corporate securities (1)
1,375 15,455 1,823 238 7,004 797 
Corporate securities (1)
3,086 21,317 2,656 3,701 21,669 2,806 
Residential mortgage-backedResidential mortgage-backed19 311 231 3 185 121 Residential mortgage-backed47 321 274 59 360 290 
Commercial mortgage-backedCommercial mortgage-backed44 1,182 161 6 344 40 Commercial mortgage-backed174 1,568 209 183 1,613 206 
Other asset-backed securitiesOther asset-backed securities130 4,245 498 23 3,235 341 Other asset-backed securities431 4,633 530 504 5,036 577 
Total temporarily impaired securitiesTotal temporarily impaired securities$2,262 $26,388 3,057 $612 $15,141 1,448 Total temporarily impaired securities$5,399 $37,719 4,417 $6,401 $39,113 4,645 
(1) Certain corporate securities contain multiple lots and fit the criteria of both aging groups.

Debt securities in an unrealized loss position as of March 31, 20222023 did not require an impairment recognized in earnings as (i) the Company did not intend to sell these debt securities, (ii) it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost basis, and (iii) the difference in the fair value compared to the amortized cost was due to factors other than credit loss. Based upon this evaluation, the Company believes it has the ability to generate adequate amounts of cash from normal operations to meet cash requirements with a reasonable margin of safety without requiring the sale of impaired securities.

2024

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
As of March 31, 2022,2023, unrealized losses associated with debt securities are primarily due to widening credit spreads or rising risk-free rates since purchase. The Company performed a detailed analysis of the financial performance of the underlying issues in an unrealized loss position and determined that recovery of the entire amortized cost of each impaired security is expected. In addition, mortgage-backed and asset-backed securities were assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities, and prepayment rates. The Company estimated losses for a security by forecasting performance in the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. The forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts, and other independent market data. Based upon this assessment of the expected credit losses of the security given the performance of the underlying collateral compared to subordination or other credit enhancement, the Company expects to recover the entire amortized cost of each impaired security.

Evaluation of Available-for-Sale Debt Securities for Credit Loss

For debt securities in an unrealized loss position, management first assesses whether the Company has the intent to sell, or whether it is more likely than not it will be required to sell the security before the amortized cost basis is fully recovered. If either criteriacriterion is met, the amortized cost is written down to fair value through net gains (losses) on derivatives and investments as an impairment.

Debt securities in an unrealized loss position for which the Company does not have the intent to sell or is not more likely than not to sell the security before recovery to amortized cost are further evaluated to determine if the cause of the decline in fair value resulted from credit losses or other factors, which includes estimates about the operations of the issuer and future earnings potential.

The credit loss evaluation may consider the following: the extent to which the fair value is below amortized cost; changes in ratings of the security; whether a significant covenant related to the security has been breached; orwhether an issuer has filed or indicated a possibility of filing for bankruptcy, has missed or announced it intends to miss a scheduled interest or principal payment, or has experienced a specific material adverse change that may impair its creditworthiness; judgments about an obligor’s current and projected financial position; an issuer’s current and projected ability to service and repay its debt obligations; the existence of, and realizable value of, any collateral backing the obligations; and the macro-economic and micro-economic outlooks for specific industries and issuers.

In addition to the above, the credit loss review of investments in asset-backed securities includes the review of future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments. These estimated cash flows are developed using available performance indicators from the underlying assets including current and projected default or delinquency rates, levels of credit enhancement, current subordination levels, vintage, expected loss severity and other relevant characteristics. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against third-party sources.

For mortgage-backed securities, credit losses are assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral characteristics and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements existing in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment timing, default rates and loss severity. Specifically, for prime and Alt-A RMBS, the assumed default percentage is dependent on the severity of delinquency status, with foreclosures and real estate owned receiving higher rates, but also includes the currently performing loans.

These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against other third-party sources. In addition, these estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. When a credit loss is determined to exist and the present value of cash flows expected to be collected is less than the amortized cost of the security, an allowance for credit loss is recorded along with a charge to net gains (losses) on derivatives and investments, limited by the amount that the fair value is less than amortized cost. Any remaining unrealized loss after recording the allowance for credit loss is the non-credit amount and is recorded to other comprehensive income.

2125

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
The allowance for credit loss for specific debt securities may be increased or reversed in subsequent periods due to changes in the assessment of the present value of cash flows that are expected to be collected. Any changes to the allowance for credit loss is recorded as a provision for (or reversal of) credit loss expense in net gains (losses) on derivatives and investments.

When all, or a portion, of a security is deemed uncollectible, the uncollectible portion is written-off with an adjustment to amortized cost and a corresponding reduction to the allowance for credit losses.

Accrued interest receivables are presented separate from the amortized cost basis of debt securities. Accrued interest receivables that are determined to be uncollectible are written off with a corresponding reduction to net investment income. Accrued interest of nil was written off both during the three months ended March 31, 20222023 and 2021.2022.

The rollforwardroll-forward of the allowance for credit loss for available-for-sale securities by sector is as follows (in millions):

March 31, 2022US
government
securities		Other government securitiesPublic
utilities		Corporate securitiesResidential mortgage-backedCommercial mortgage-backedOther
asset-backed securities		Total
Balance at January 1, 2022$—$—$—$—$2$—$7$9
Three Months Ended March 31, 2023Three Months Ended March 31, 2023US
government
securities		Other government securitiesPublic
utilities		Corporate securitiesResidential mortgage-backedCommercial mortgage-backedOther
asset-backed securities		Total
Balance at January 1, 2023Balance at January 1, 2023$—$2$—$15$6$—$—$23
Additions for which credit loss was not previously recordedAdditions for which credit loss was not previously recorded—6—27—33Additions for which credit loss was not previously recorded—32—32
Changes for securities with previously recorded credit lossChanges for securities with previously recorded credit loss—(5)Changes for securities with previously recorded credit loss—1—1
Additions for purchases of PCD debt securities (1)
Additions for purchases of PCD debt securities (1)
—
Additions for purchases of PCD debt securities (1)
—
Reductions from charge-offsReductions from charge-offs—Reductions from charge-offs—
Reductions for securities disposedReductions for securities disposed—Reductions for securities disposed—(9)(1)—(10)
Securities intended/required to be sold before recovery of amortized cost basisSecurities intended/required to be sold before recovery of amortized cost basis—(5)—(5)Securities intended/required to be sold before recovery of amortized cost basis—(17)—(17)
Balance at March 31, 2022 (2)
$—$6$—$22$2$—$2$32
Balance at March 31, 2023 (2)
Balance at March 31, 2023 (2)
$—$3$—$21$5$—$—$29

March 31, 2021US
government
securities		Other government securitiesPublic
utilities		Corporate securitiesResidential mortgage-backedCommercial mortgage-backedOther
asset-backed securities		Total
Balance at January 1, 2021$—$—$—$—$—$—$14$14
Three Months Ended March 31, 2022Three Months Ended March 31, 2022US
government
securities		Other government securitiesPublic
utilities		Corporate securitiesResidential mortgage-backedCommercial mortgage-backedOther
asset-backed securities		Total
Balance at January 1, 2022Balance at January 1, 2022$—$—$—$—$2$—$7$9
Additions for which credit loss was not previously recordedAdditions for which credit loss was not previously recorded—1—1Additions for which credit loss was not previously recorded—6—27—33
Changes for securities with previously recorded credit lossChanges for securities with previously recorded credit loss—(10)Changes for securities with previously recorded credit loss—(5)
Additions for purchases of PCD debt securities (1)
Additions for purchases of PCD debt securities (1)
—
Additions for purchases of PCD debt securities (1)
—
Reductions from charge-offsReductions from charge-offs—Reductions from charge-offs—
Reductions for securities disposedReductions for securities disposed—Reductions for securities disposed—
Securities intended/required to be sold before recovery of amortized cost basisSecurities intended/required to be sold before recovery of amortized cost basis—Securities intended/required to be sold before recovery of amortized cost basis—(5)—(5)
Balance at March 31, 2021 (2)
$—$—$—$—$1$—$4$5
Balance at March 31, 2022 (2)
Balance at March 31, 2022 (2)
$—$6$—$22$2$—$2$32

(1) Represents purchased credit-deteriorated ("PCD") fixed maturity available-for-sale securities.
(2) Accrued interest receivable on debt securities totaled $385$413 million and $426$385 million as of March 31, 20222023 and 2021,2022, respectively, and was excluded from the determination of credit losses for the three months ended March 31, 20222023 and 2021.2022.


2226

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
Net Investment Income

The sources of net investment income were as follows (in millions):

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Debt securities (1)
Debt securities (1)
$273 $323 
Debt securities (1)
$382 $273 
Equity securitiesEquity securities1 — Equity securities(10)1 
Mortgage loansMortgage loans73 82 Mortgage loans76 73 
Policy loansPolicy loans17 19 Policy loans17 17 
Limited partnershipsLimited partnerships108 243 Limited partnerships37 108 
Other investment incomeOther investment income1 4 Other investment income28 1 
Total investment income excluding funds withheld assetsTotal investment income excluding funds withheld assets473 671 Total investment income excluding funds withheld assets530 473 
Investment expensesInvestment expenses(115)(43)
Net investment income excluding funds withheld assetsNet investment income excluding funds withheld assets415 430 
Net investment income on funds withheld assets (see Note 8)Net investment income on funds withheld assets (see Note 8)260 291 Net investment income on funds withheld assets (see Note 8)307 260 
Investment expenses:
Derivative trading commission(1)(1)
Depreciation on real estate(3)(3)
Expenses related to consolidated entities (2)
(21)(8)
Other investment expenses (3)
12 (22)
Total investment expenses(13)(34)
Net investment incomeNet investment income$720 $928 Net investment income$722 $690 
(1) Includes unrealized gains and losses(losses) on trading securities and includes $27 million and $(10) million and $38 million as offor the three months ended March 31, 20222023 and 2021,2022, respectively, related to the change in fair value for securities carried under the fair value option.
(2) Includes management fees, administrative fees, legal fees, and other expenses related to the consolidation of certain investments.
(3) Includes interest expense and market appreciation on deferred compensation; investment software expense, custodial fees, and other bank fees; institutional product issuance related expenses; and other expenses.

Unrealized gains (losses) included in investment income that were recognized on equity securities held were $(18)$(14) million and $5$(18) million, for the three months ended March 31, 20222023 and 2021,2022, respectively.

23

Net Gains (Losses) on Derivatives and Investments

The following table summarizes net gains (losses) on derivatives and investments (in millions)millions, recast for the adoption of LDTI):

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Available-for-sale securitiesAvailable-for-sale securitiesAvailable-for-sale securities
Realized gains on sale Realized gains on sale$24 $25  Realized gains on sale$4 $24 
Realized losses on sale Realized losses on sale(178)(6) Realized losses on sale(25)(178)
Credit loss income (expense) Credit loss income (expense)— 9  Credit loss income (expense)(11)— 
Credit loss income (expense) on mortgage loansCredit loss income (expense) on mortgage loans12 59 Credit loss income (expense) on mortgage loans(47)12 
Other (1)
Other (1)
12 66 
Other (1)
11 12 
Net gains (losses) excluding derivatives and funds withheld assetsNet gains (losses) excluding derivatives and funds withheld assets(130)153 Net gains (losses) excluding derivatives and funds withheld assets(68)(130)
Net gains (losses) on derivative instruments (see Note 5)Net gains (losses) on derivative instruments (see Note 5)707 1,655 Net gains (losses) on derivative instruments (see Note 5)(2,658)(1,436)
Net gains (losses) on derivatives and investmentsNet gains (losses) on derivatives and investments(2,726)(1,566)
Net gains (losses) on funds withheld reinsurance treaties (see Note 8)Net gains (losses) on funds withheld reinsurance treaties (see Note 8)1,028 898 Net gains (losses) on funds withheld reinsurance treaties (see Note 8)(673)1,028 
Total net gains (losses) on derivatives and investments Total net gains (losses) on derivatives and investments$1,605 $2,706  Total net gains (losses) on derivatives and investments$(3,399)$(538)
(1) Includes the foreign currency gain or loss related to foreign denominated trust instruments supporting funding agreements.
(1) Includes the foreign currency gain or loss related to foreign denominated trust instruments supporting funding agreements.
(1) Includes the foreign currency gain or loss related to foreign denominated trust instruments supporting funding agreements.
Net gains (losses) on funds withheld reinsurance treaties represents income (loss) from the sale of investments held in segregated funds withheld accounts in support of reinsurance agreements for which Jackson retains legal ownership of the underlying investments. These gains (losses) are increased or decreased by changes in the embedded derivative liability related to the Athene Reinsurance Agreementfunds withheld coinsurance agreement and also include (i) changes in the related funds withheld payable, as all economic performance of the investments held in the segregated accounts inure to the benefit of the reinsurers under the respective reinsurance agreements with each reinsurer, and (ii) amortization of the difference between book value and fair value of the investments as of the effective date of the reinsurance agreements with each reinsurer.

The aggregate fair value of securities sold at a loss for the three months ended March 31, 2023 and 2022 and 2021 was $2,392$1,797 million and $297$2,392 million, which was approximately 92%97% and 98%92% of book value, respectively.
27
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments

Proceeds from sales of available-for-sale debt securities were $4,013 million$2.1 billion and $2,827 million$4.0 billion during the three months ended March 31, 2022,2023 and 2021,2022, respectively.

There are inherent uncertainties in assessing the fair values assigned to the Company’s investments. The Company’s reviews of net present value and fair value involve several criteria including economic conditions, credit loss experience, other issuer-specific developments and estimated future cash flows. These assessments are based on the best available information at the time. Factors such as market liquidity, the widening of bid/ask spreads and a change in the cash flow assumptions can contribute to future price volatility. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financial statements,Consolidated Financial Statements, unrealized losses currently reported in accumulated other comprehensive income (loss) may be recognized in the consolidated income statementsConsolidated Income Statements in future periods.

The Company currently has no intent to sell securities with unrealized losses considered to be temporary until they mature or recover in value and believes that it has the ability to do so. However, if the specific facts and circumstances surrounding an individual security, or the outlook for its industry sector change, the Company may sell the security prior to its maturity or recovery and realize a loss.


24

Consolidated Variable Interest Entities ("VIEs")

The Company funds affiliated limited liability companies to facilitate the issuance of collateralized loan obligations ("CLOs"). The Company concluded that these limited liability companies are VIEs and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the entity as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. In 2020,April 2022, the Company sold the interestreinvested in one of the collateralized loan obligationCLO issuances resulting in the reductionan increase of consolidated assets and liabilities. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments. In December 2022, a consolidated VIE issued $276 million par, net of the Company’s holding, of CLOs. The Company’s policy is to record the consolidation of VIEs on a one-month lag due to the timing of when information is available from the VIE. Therefore, the VIE's issuance of this CLO is not reflected in the Company’s Consolidated Balance Sheet as of December 31, 2022 but would not materially impact the financial position of the Company as a result of the offsetting changes to assets and liabilities.

Private Equity Funds III – VIII are limited partnership structures that invest the ownership capital in portfolios of various other limited partnership structures. The Company concluded that the Private Equity Funds are VIEs and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the funds as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the funds. In the fourth quarter of 2021, the Company entered into a commitment to invest up to $300 million in the newly formed Private Equity Fund VIII. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments.

PPM has created and managed institutional share class mutual funds, where Jackson seeds new funds, or new share classes within a fund, when deemed necessary to develop the requisite track record prior to allowing investment by external parties. Jackson may sell its interest in the fund once opened to investment by external parties. The Company concluded that these funds are VIEs and that the Company is the primary beneficiary as it has both the power to direct the most significant activities of the VIE as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company’s exposure to loss related to these mutual funds is limited to the capital invested.


28
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
Asset and liability information for the consolidated VIEs included on the Condensed Consolidated Balance Sheets are as follows (in millions):

March 31, 2022December 31, 2021March 31, 2023December 31, 2022
AssetsAssetsAssets
Debt securities, at fair value under fair value optionDebt securities, at fair value under fair value option$1,628 $1,546 Debt securities, at fair value under fair value option$2,093 $2,014 
Debt securities, tradingDebt securities, trading115 117 Debt securities, trading101 100 
Equity securitiesEquity securities131 129 Equity securities113 127 
Limited partnerships1,399 1,309 
Other invested assetsOther invested assets1,558 1,507 
Cash and cash equivalentsCash and cash equivalents63 120 Cash and cash equivalents130 75 
Other assetsOther assets24 45 Other assets41 19 
Total assetsTotal assets$3,360 $3,266 Total assets$4,036 $3,842 
LiabilitiesLiabilitiesLiabilities
Debt owed to non-controlling interests$1,401 $1,404 
Notes issued by consolidated VIEs, at fair value under fair value optionNotes issued by consolidated VIEs, at fair value under fair value option$2,016 $1,732 
Other liabilitiesOther liabilities354 307 Other liabilities123 343 
Total other liabilitiesTotal other liabilities1,755 1,711 Total other liabilities2,139 2,075 
Securities lending payableSecurities lending payable3 4 Securities lending payable4 4 
Total liabilitiesTotal liabilities$1,758 $1,715 Total liabilities$2,143 $2,079 
EquityEquityEquity
Noncontrolling interestsNoncontrolling interests$715 $680 Noncontrolling interests$829 $732 

25

Unconsolidated VIEs

The Company invests in certain limited partnerships ("LPs") and limited liability companies ("LLCs") that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs as it does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. In addition, the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities. Therefore, the Company does not consolidate these VIEs and the carrying amounts of the Company’s investments in these LPs and LLCs are recognized in other invested assets on the consolidated balance sheets.Condensed Consolidated Balance Sheets. Unfunded capital commitments for these investments are detailed in Note 13.16 of the Notes to Condensed Consolidated Financial Statements. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to the LPs/LLCs, for both consolidated and unconsolidated VIEs, which was $4,261$3,379 million and $3,860$3,285 million as of March 31, 20222023 and December 31, 2021,2022, respectively. The capital invested in an LP or LLC equals the original capital contributed, increased for additional capital contributed after the initial investment, and reduced for any returns of capital from the LP or LLC. LPs and LLCs are carried at fair value.

The Company invests in certain mutual funds that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs. Mutual funds for which the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities are recognized in equity securities on the Condensed Consolidated Balance Sheets and were $30 million and $33$28 million as of March 31, 20222023 and December 31, 2021,2022, respectively. The Company’s maximum exposure to loss on these mutual funds is limited to the amortized cost for these investments.

29
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
The Company makes investments in structured debt securities issued by VIEs for which they areit is not the manager. These structured debt securities include RMBS, Commercial Mortgage-Backed Securities ("CMBS"), and asset-backed securities ("ABS"). The Company does not consolidate the securitization trusts utilized in these transactions because they doit does not have the power to direct the activities that most significantly impact the economic performance of these securitization trusts. The Company does not consider its continuing involvement with these VIEs to be significant because theyit either investinvests in securities issued by the VIE and werewas not involved in the design of the VIE or no transfers have occurred between the Company and the VIE. The Company’s maximum exposure to loss on these structured debt securities is limited to the amortized cost of these investments. The Company does not have any further contractual obligations to the VIE. The Company recognizes the variable interest in these VIEs at fair value on the consolidated balance sheets.Condensed Consolidated Balance Sheets.

Commercial and Residential Mortgage Loans

Commercial mortgage loans of $10.6$10.2 billion and $10.5$10.2 billion at March 31, 20222023 and December 31, 2021,2022, respectively, are reported net of an allowance for credit losses of $78$139 million and $85$91 million at each date, respectively. At March 31, 2022,2023, commercial mortgage loans were collateralized by properties located in 3837 states, the District of Columbia, and Europe. Accrued interest receivable on commercial mortgage loans was $33$39 million and $32$39 million at March 31, 20222023 and December 31, 2021,2022, respectively.

Residential mortgage loans of $1,039 million$1.1 billion and $939 million$1.3 billion at March 31, 20222023 and December 31, 2021,2022, respectively, are reported net of an allowance for credit losses of $6$7 million and $9$4 million at each date, respectively. Loans were collateralized by properties located in 50 states, the District of Columbia, Mexico, and Europe. Accrued interest receivable on residential mortgage loans was $11$8 million and $13$9 million at March 31, 20222023 and December 31, 2021,2022, respectively.


26

Mortgage Loan Concessions

In response to the adverse economic impact of the COVID-19 pandemic, the Company granted concessions to certain of its commercial mortgage loan borrowers, including payment deferrals and other loan modifications. The Company has elected the option under the Coronavirus Aid, Relief, and Economic Security Act, the Consolidated Appropriations Act of 2021, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by bank regulatory agencies, not to account for or report qualifying concessions as troubled debt restructurings and does not classify such loans as past due during the payment deferral period. Additionally, in accordance with the FASB’s published response to a COVID-19 Pandemic technical inquiry, the Company
continues to accrue interest income on such loans that have deferred payment. For some commercial mortgage loan borrowers (principally in the hotel and retail sectors), the Company granted concessions which were primarily interest and/
or principal payment deferrals generally ranging from 6 to 14 months and, to a much lesser extent, maturity date extensions. Repayment periods are generally within one year but may extend until maturity date. Deferred commercial mortgage loan interest and principal payments were $10 million at March 31, 2022.2023. The concessions granted had no impact on the Company’s results of operations or financial position as the Company has not granted concessions that would have been disclosed and accounted for as troubled debt restructurings.

Evaluation for Credit Losses on Mortgage Loans

The Company reviews mortgage loans that are not carried at fair value under the fair value option on a quarterly basis to estimate the ACL with changes in the ACL recorded in net gains (losses) on derivatives and investments. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level for commercial mortgage loans. The model forecasts net operating income and property values for the economic scenario selected. The debt service coverage ratios (“DSCR”) and loan to values (“LTV”) are calculated over the forecastable period by comparing the projected net operating income and property valuations to the loan payment and principal amounts of each loan. The model utilizes historical mortgage loan performance based on DSCRs and LTV to derive probability of default and expected losses based on the economic scenario that is similar to the Company’s expectations of economic factors such as unemployment, GDPgross domestic product growth, and interest rates. The Company determined the forecastable period to be reasonable and supportable for a period of two years beyond the end of the reporting period. Over the following one-year period, the model reverts to the historical performance of the portfolio for the remainder of the contractual term of the loans. In cases where the Company does not
30
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
have an appropriate length of historical performance, the relevant historical rate from an index or the lifetime expected credit loss calculated from the model may be used.

Unfunded commitments are included in the model and an ACL is determined accordingly. Credit loss estimates are pooled by property type and the Company does not include accrued interest in the determination of ACL.

For individual loans or for types of loans for which the third-party model is deemed not suitable, the Company utilizes relevant current market data, industry data, and publicly available historical loss rates to calculate an estimate of the lifetime expected credit loss.

Mortgage loans on real estate deemed uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL, limited to the aggregate of amounts previously charged-off and expected to be charged-off. Mortgage loans on real estate are presented net of the allowance for credit losses on the Condensed Consolidated Balance Sheets.


27

The following table provides a summary of the allowance for credit losses in the Company’s mortgage loan portfolios (in millions):

March 31, 2022ApartmentHotelOfficeRetailWarehouseResidential MortgageTotal
Balance at January 1, 2022$19 $9 $28 $17 $12 $9 $94 
Charge offs, net of recoveries— — — — — — — 
Provision (release)2 — (6)(3)— (3)(10)
Balance at March 31, 2022 (1)
$21 $9 $22 $14 $12 $6 $84 
Three Months Ended March 31, 2023ApartmentHotelOfficeRetailWarehouseResidential MortgageTotal
Balance at January 1, 2023$18 $20 $15 $22 $16 $4 $95 
Charge offs, net of recoveries— — — — — — — 
Provision (release)2 (1)52 — (5)3 51 
Balance at March 31, 2023 (1)
$20 $19 $67 $22 $11 $7 $146 

March 31, 2021ApartmentHotelOfficeRetailWarehouseResidential MortgageTotal
Balance at January 1, 2021$58 $34 $25 $24 $24 $14 $179 
Charge offs, net of recoveries— — — — — — — 
Provision (release)(31)(12)(9)(9)(10)6 (65)
Balance at March 31, 2021 (1)
$27 $22 $16 $15 $14 $20 $114 
Three Months Ended March 31, 2022ApartmentHotelOfficeRetailWarehouseResidential MortgageTotal
Balance at January 1, 2022$19 $9 $28 $17 $12 $9 $94 
Charge offs, net of recoveries— — — — — — — 
Provision (release)2 — (6)(3)— (3)(10)
Balance at March 31, 2022 (1)$21 $9 $22 $14 $12 $6 $84 
(1) Accrued interest receivable totaled $44$47 million and $35$44 million as of March 31, 20222023 and 2021,2022, respectively, and was excluded from the determination of credit losses.
The Company’s mortgage loans that are current and in good standing are accruing interest. Interest is not accrued on loans greater than 90 days delinquent and in process of foreclosure, when deemed uncollectible. Delinquency status is determined from the date of the first missed contractual payment.

At March 31, 2022,2023, there was $19$15 million of recorded investment, $20$16 million of unpaid principal balance, no related loan allowance, $7$16 million of average recorded investment, and $1 millionno investment income recognized on impaired residential mortgage loans.

At December 31, 2021,2022, there was $6$15 million of recorded investment, $7$16 million of unpaid principal balance, no related loan allowance, $2$18 million of average recorded investment, and no investment income recognized on impaired residential mortgage loans.


2831

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
The following tables provide information about the credit quality andwith vintage year and category of mortgage loans (in millions):

March 31, 2022March 31, 2023
20212020201920182017PriorRevolving
Loans		Total% of
Total		20232022202120202019PriorRevolving
Loans		Total% of
Total
Commercial mortgage loansCommercial mortgage loansCommercial mortgage loans
Loan to value ratios:Loan to value ratios:Loan to value ratios:
Less than 70%Less than 70%$161 $1,350 $1,348 $1,575 $1,515 $3,974 $4 $9,927 94 %Less than 70%$240 $791 $1,263 $1,131 $1,419 $4,775 $4 $9,623 94 %
70% - 80%70% - 80%25 345 33 — 52 145 — 600 6 %70% - 80%— 125 191 — 13 64 — 393 4 %
80% - 100%80% - 100%— — — 39 5 — — 44 — %80% - 100%— — 151 — — 45 — 196 2 %
Greater than 100%Greater than 100%— — — — — 10 — 10 — %Greater than 100%— — — — 24 9 — 33 — %
Total commercial mortgage loansTotal commercial mortgage loans186 1,695 1,381 1,614 1,572 4,129 4 10,581 100 %Total commercial mortgage loans240 916 1,605 1,131 1,456 4,893 4 10,245 100 %
Debt service coverage ratios:Debt service coverage ratios:Debt service coverage ratios:
Greater than 1.20xGreater than 1.20x150 944 863 1,513 1,211 3,756 4 8,441 80 %Greater than 1.20x240 694 1,063 881 1,333 4,419 4 8,634 84 %
1.00x - 1.20x1.00x - 1.20x36 553 375 83 89 78 — 1,214 11 %1.00x - 1.20x— 218 395 108 82 199 — 1,002 10 %
Less than 1.00xLess than 1.00x— 198 143 18 272 295 — 926 9 %Less than 1.00x— 4 147 142 41 275 — 609 6 %
Total commercial mortgage loansTotal commercial mortgage loans186 1,695 1,381 1,614 1,572 4,129 4 10,581 100 %Total commercial mortgage loans240 916 1,605 1,131 1,456 4,893 4 10,245 100 %
Residential mortgage loansResidential mortgage loansResidential mortgage loans
PerformingPerforming90 303 45 41 17 401 — 897 86 %Performing16 308 259 45 34 410 — 1,072 94 %
Nonperforming (2)
Nonperforming (2)
— 4 22 13 14 89 — 142 14 %
Nonperforming (2)
— 4 11 9 6 44 — 74 6 %
Total residential mortgage loansTotal residential mortgage loans90 307 67 54 31 490 — 1,039 100 %Total residential mortgage loans16 312 270 54 40 454 — 1,146 100 %
Total mortgage loansTotal mortgage loans$276 $2,002 $1,448 $1,668 $1,603 $4,619 $4 $11,620 100 %Total mortgage loans$256 $1,228 $1,875 $1,185 $1,496 $5,347 $4 $11,391 100 %

December 31, 2021December 31, 2022
20212020201920182017PriorRevolving
Loans		Total% of
Total		20222021202020192018PriorRevolving
Loans		Total% of
Total
Commercial mortgage loansCommercial mortgage loansCommercial mortgage loans
Loan to value ratios:Loan to value ratios:Loan to value ratios:
Less than 70%Less than 70%$1,270 $1,346 $1,592 $1,599 $1,305 $2,703 $4 $9,819 93 %Less than 70%$771 $1,266 $1,171 $1,473 $1,480 $3,421 $4 $9,586 94 %
70% - 80%70% - 80%345 35 — 52 85 153 — 670 6 %70% - 80%125 190 32 13 5 59 — 424 4 %
80% - 100%80% - 100%— — 39 5 — — — 44 — %80% - 100%— 152 — — 5 40 — 197 2 %
Greater than 100%Greater than 100%— — — — — 10 — 10 — %Greater than 100%— — — 25 — 9 — 34 — %
Total commercial mortgage loansTotal commercial mortgage loans1,615 1,381 1,631 1,656 1,390 2,866 4 10,543 100 %Total commercial mortgage loans896 1,608 1,203 1,511 1,490 3,529 4 10,241 100 %
Debt service coverage ratios:Debt service coverage ratios:Debt service coverage ratios:
Greater than 1.20xGreater than 1.20x796 974 1,532 1,293 1,257 2,609 4 8,465 80 %Greater than 1.20x694 1,092 955 1,387 1,324 3,211 4 8,667 85 %
1.00x - 1.20x1.00x - 1.20x651 329 81 90 11 68 — 1,230 12 %1.00x - 1.20x202 372 106 83 34 172 — 969 9 %
Less than 1.00xLess than 1.00x168 78 18 273 122 189 — 848 8 %Less than 1.00x— 144 142 41 132 146 — 605 6 %
Total commercial mortgage loansTotal commercial mortgage loans1,615 1,381 1,631 1,656 1,390 2,866 4 10,543 100 %Total commercial mortgage loans896 1,608 1,203 1,511 1,490 3,529 4 10,241 100 %
Residential mortgage loansResidential mortgage loansResidential mortgage loans
PerformingPerforming268 22 18 16 7 396 — 727 77 %Performing413 308 49 37 14 409 — 1,230 94 %
Nonperforming (2)
Nonperforming (2)
4 44 22 19 23 100 — 212 23 %
Nonperforming (2)
6 11 8 6 7 40 — 78 6 %
Total residential mortgage loansTotal residential mortgage loans272 66 40 35 30 496 — 939 100 %Total residential mortgage loans419 319 57 43 21 449 — 1,308 100 %
Total mortgage loansTotal mortgage loans$1,887 $1,447 $1,671 $1,691 $1,420 $3,362 $4 $11,482 100 %Total mortgage loans$1,315 $1,927 $1,260 $1,554 $1,511 $3,978 $4 $11,549 100 %
32
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments

29

 March 31, 2022  March 31, 2023
 
In Good Standing (1)
 Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value  
In Good Standing (1)
 Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value
ApartmentApartment $3,875 $— $— $— $3,875 Apartment $3,513 $— $— $— $3,513 
HotelHotel 1,049 — — — 1,049 Hotel 1,006 — — — 1,006 
OfficeOffice 1,891 — — — 1,891 Office 1,732 — — — 1,732 
RetailRetail 2,049 — — — 2,049 Retail 2,063 — — — 2,063 
WarehouseWarehouse 1,717 — — — 1,717 Warehouse 1,931 — — — 1,931 
Total commercialTotal commercial 10,581 — — — 10,581 Total commercial 10,245 — — — 10,245 
Residential (2)
Residential (2)
 897 — 123 19 1,039 
Residential (2)
 1,072 — 59 15 1,146 
TotalTotal $11,478 $— $123 $19 $11,620 Total $11,317 $— $59 $15 $11,391 

 December 31, 2021  December 31, 2022
 
In Good Standing (1)
 Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value  
In Good Standing (1)
 Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value
ApartmentApartment $3,755 $— $— $— $3,755 Apartment $3,558 $— $— $— $3,558 
HotelHotel 1,054 — — — 1,054 Hotel 1,015 — — — 1,015 
OfficeOffice 1,889 — — — 1,889 Office 1,795 — — — 1,795 
RetailRetail 2,104 — — — 2,104 Retail 2,085 — — — 2,085 
WarehouseWarehouse 1,741 — — — 1,741 Warehouse 1,788 — — — 1,788 
Total commercialTotal commercial 10,543 — — — 10,543 Total commercial 10,241 — — — 10,241 
Residential (2)
Residential (2)
 727 — 206 6 939 
Residential (2)
 1,230 — 63 15 1,308 
TotalTotal $11,270 $— $206 $6 $11,482 Total $11,471 $— $63 $15 $11,549 
(1)     At March 31, 20222023 and December 31, 2021,2022, includes mezzanine and bridge loans of $343$378 million and $278$410 million in the Apartment category, $76$36 million and $75$41 million in the Hotel category, $254$187 million and $252$236 million in the Office category, $26$31 million and $27$43 million in the Retail category, and $36$201 million and $26$140 million in the Warehouse category, respectively.
(2)    At March 31, 20222023 and December 31, 2021,2022, includes $119$41 million and $202$41 million of loans purchased when the loans were greater than 90 days delinquent and $17$11 million and $5$12 million of loans in process of foreclosure, and are supported with insurance or other guarantees provided by various governmental programs, respectively.

As of March 31, 20222023 and December 31, 2021,2022, there were no commercial mortgage loans involved in troubled debt restructuring, and stressed mortgage loans for which the Company is dependent, or expects to be dependent, on the underlying property to satisfy repayment were nil.$4 million and $3 million, respectively.

Policy Loans

Policy loans are loans the Company issues to contract holders that use the cash surrender value of their life insurance policy or annuity contract as collateral. At both March 31, 2023 and December 31, 2022, $3.4 billion these loans were carried at fair value, which the Company believes is equal to unpaid principal balances, plus accrued investment income. At both March 31, 2023 and December 31, 2022, the Company had $1.0 billion of policy loans not held as collateral for reinsurance, which were carried at the unpaid principal balances.

33
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
Other Invested Assets

Other invested assets primarily include investments in Federal Home Loan Bank capital stock, limited partnerships (“LPs”), and real estate. Federal Home Loan Bank capital stock is carried at cost and adjusted for any impairment. At both March 31, 20222023 and December 31, 2021,2022, FHLB capital stock had carrying value of $146 million and $125 million, respectively. Real estate is carried at the lower of depreciated cost or fair value. At March 31, 20222023 and December 31, 2021,2022, real estate totaling $242$235 million and $243$237 million, respectively, included foreclosed properties with a book value of $1 millionnil at both March 31, 20222023 and December 31, 2021.2022, respectively. Carrying values for limited partnership investments are generally determined by using the proportion of the Company’s investment in each fund (Net Asset Value (“NAV”) equivalent) as a practical expedient for fair value, and generally are recorded on a three-month lag, with changes in value included in net investment income. At March 31, 20222023 and December 31, 2021,2022, investments in LPs had carrying values of $3,016$3,330 million and $2,831$3,212 million, respectively.

In June 2021, the Company entered into an arrangement to sell $420 million of limited partnership investments, of which $236 million and $168 million were sold in the second and third quarter of 2021, respectively, and the remainder was sold in January 2022. The LPs sold were carried at estimated sales price. The Company expects to reinvest in new LPs as attractive opportunities become available.


30

Securities Lending

The Company has entered into securities lending agreements with agent banks whereby blocks of securities are loaned to third parties, primarily major brokerage firms. As of March 31, 20222023 and December 31, 2021,2022, the estimated fair value of loaned securities was $15$38 million and $17$35 million, respectively. The agreements require a minimum of 102 percent102% of the fair value of the loaned securities to be held as collateral, calculated on a daily basis.daily. To further minimize the credit risks related to these programs, the financial condition of counterparties is monitored on a regular basis. At March 31, 20222023 and December 31, 2021,2022, cash collateral received in the amount of $15$39 million and $17$36 million, respectively, was invested by the agent banks and included in cash and cash equivalents of the Company. A securities lending payable for the overnight and continuous loans is included in liabilities in the amount of cash collateral received. Securities lending transactions are used to generate income. Income and expenses associated with these transactions are reported as net investment income.

Repurchase Agreements

The Company routinely enters into repurchase agreements whereby the Company agrees to sell and repurchase securities. These agreements are accounted for as financing transactions, with the assets and associated liabilities included in the Condensed Consolidated Balance Sheets. Short-term borrowings under such agreements averaged $210$808 million for three months ended March 31, 20222023 and $1,548$311 million for the year ended December 31, 2021,2022, with weighted average interest rates of 0.15%3.87% and 0.07%2.54%, respectively. At March 31, 20222023 and December 31, 2021,2022, the outstanding repurchase agreement balance was $584$1,085 million and $1,572$1,012 million, respectively, collateralized with U.S. Treasury notes and corporate securities and maturing within 30 days, and was included within repurchase agreements and securities lending payable in the Condensed Consolidated Balance Sheets. In the event of a decline in the fair value of the pledged collateral under these agreements, the Company may be required to transfer cash or additional securities as pledged collateral. Interest expense totaled NaN during$8 million and nil both for the three months ended March 31, 2022,2023 and 2021,2022, respectively. The highest level of short-term borrowings at any month end was $584$1,085 million and $2,042$584 million for the three months ended March 31, 2022,2023 and 2021,2022, respectively.

3134

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments

5. Derivative Instruments

The Company’s business model includes the acceptance, monitoring and mitigation of risk. Specifically, the Company considers, among other factors, exposures to interest rate and equity market movements, foreign exchange rates and other asset or liability prices. The Company uses derivative instruments to mitigate or reduce these risks in accordance with established policies and goals. The Company’s derivative holdings, while effective in managing defined risks, are not structured to meet accounting requirements to be designated as hedging instruments. As a result, freestanding derivatives are carried at fair value with changes recorded in net gains (losses) on derivatives and investments.

A summary of the aggregate contractual or notional amounts and fair values of the Company’s freestanding and embedded derivative instruments are as follows (in millions)millions, 2022 information recast for the adoption of LDTI):

March 31, 2022March 31, 2023
Contractual/AssetsLiabilitiesNetContractual/AssetsLiabilitiesNet
NotionalFairFairFair ValueNotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Amount (1)
ValueValueAsset (Liability)
Freestanding derivativesFreestanding derivativesFreestanding derivatives
Cross-currency swapsCross-currency swaps$1,784 $44 $55 $(11)Cross-currency swaps$1,854 $75 $123 $(48)
Equity index call optionsEquity index call options30,500 391 — 391 Equity index call options17,500 247 — 247 
Equity index futures (2)
Equity index futures (2)
20,220 — — — 
Equity index futures (2)
16,328 — — — 
Equity index put optionsEquity index put options35,500 290 — 290 Equity index put options43,500 643 — 643 
Interest rate swapsInterest rate swaps7,728 143 — 143 Interest rate swaps7,728 7 148 (141)
Interest rate swaps - cleared (2)
Interest rate swaps - cleared (2)
1,500 — — — 
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptionsPut-swaptions22,000 — 343 (343)Put-swaptions22,000 — 1,157 (1,157)
Treasury futures (2)
16 — — — 
Interest rate futures (2)
Interest rate futures (2)
81,365 — — — 
Total return swapsTotal return swaps1,318 — 61 (61)
Total freestanding derivativesTotal freestanding derivatives119,248 868 398 470 Total freestanding derivatives193,093 972 1,489 (517)
Embedded derivativesEmbedded derivativesEmbedded derivatives
VA embedded derivatives (3)
N/A— 452 (452)
FIA embedded derivatives (4)
N/A— 1,299 (1,299)
RILA embedded derivatives (4)
N/A— 16 (16)
Fixed index annuity embedded derivatives (3)
Fixed index annuity embedded derivatives (3)
N/A— 963 (963)
Registered index linked annuity embedded derivatives (3)
Registered index linked annuity embedded derivatives (3)
N/A— 421 (421)
Total embedded derivativesTotal embedded derivativesN/A— 1,767 (1,767)Total embedded derivativesN/A— 1,384 (1,384)
Derivatives related to funds withheld under reinsurance treatiesDerivatives related to funds withheld under reinsurance treatiesDerivatives related to funds withheld under reinsurance treaties
Cross-currency swapsCross-currency swaps158 13 1 12 Cross-currency swaps158 23 1 22 
Cross-currency forwardsCross-currency forwards1,296 45 6 39 Cross-currency forwards1,417 56 20 36 
Funds withheld embedded derivative (5)
N/A1,161 — 1,161 
Funds withheld embedded derivative (4)
Funds withheld embedded derivative (4)
N/A2,788 — 2,788 
Total derivatives related to funds withheld under reinsurance treatiesTotal derivatives related to funds withheld under reinsurance treaties1,454 1,219 7 1,212 Total derivatives related to funds withheld under reinsurance treaties1,575 2,867 21 2,846 
TotalTotal$120,702 $2,087 $2,172 $(85)Total$194,668 $3,839 $2,894 $945 

(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The non-performance risk adjustment is included in the balance above.
(4) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

35
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
December 31, 2022
Contractual/AssetsLiabilitiesNet
NotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Freestanding derivatives
Cross-currency swaps$1,825 $73 $104 $(31)
Equity index call options17,500 106 — 106 
Equity index futures (2)
19,760 — — — 
Equity index put options30,500 958 — 958 
Interest rate swaps7,728 5 231 (226)
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptions25,000 — 1,711 (1,711)
Interest rate futures (2)
105,261 — — — 
Total return swaps739 31 — 31 
Total freestanding derivatives209,813 1,173 2,046 (873)
Embedded derivatives
Fixed index annuity embedded derivatives (3)
N/A— 931 (931)
Registered index linked annuity embedded derivatives (3)
N/A— 205 (205)
Total embedded derivativesN/A— 1,136 (1,136)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps158 23 1 22 
Cross-currency forwards1,490 74 18 56 
Funds withheld embedded derivative (4)
N/A3,158 — 3,158 
Total derivatives related to funds withheld under reinsurance treaties1,648 3,255 19 3,236 
Total$211,461 $4,428 $3,201 $1,227 
(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within reserves for future policy benefits and claims payableother contract holder funds on the Condensed Consolidated Balance Sheets. The nonperformancenon-performance risk adjustment is included in the balance above.
(4)Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above.
(5) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

3236

Item 1 |
December 31, 2021
Contractual/AssetsLiabilitiesNet
NotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Freestanding derivatives
Cross-currency swaps$1,767 $55 $35 $20 
Equity index call options21,000 606 — 606 
Equity index futures (2)
18,258 — — — 
Equity index put options27,500 150 — 150 
Interest rate swaps7,728 430 — 430 
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptions19,000 133 — 133 
Treasury futures (2)
912 — — — 
Total freestanding derivatives97,665 1,374 35 1,339 
Embedded derivatives
VA embedded derivatives (3)
N/A— 2,626 (2,626)
FIA embedded derivatives (4)
N/A— 1,439 (1,439)
   RILA embedded derivatives (4)
N/A— 6 (6)
Total embedded derivativesN/A— 4,071 (4,071)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps158 10 1 9 
Cross-currency forwards1,119 33 5 28 
Funds withheld embedded derivative (5)
N/A— 120 (120)
Total derivatives related to funds withheld under reinsurance treaties1,277 43 126 (83)
Total$98,942 $1,417 $4,232 $(2,815)
(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within reserves for future policy benefits and claims payable on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above.
(4) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above.
(5) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

33

Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
The following table reflects the results of the Company’s derivatives, including gains (losses) and change in fair value of freestanding derivative instruments and embedded derivatives (in millions)millions, 2022 information recast for the adoption of LDTI):

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Derivatives excluding funds withheld under reinsurance treatiesDerivatives excluding funds withheld under reinsurance treatiesDerivatives excluding funds withheld under reinsurance treaties
Cross-currency swapsCross-currency swaps$(32)$(65)Cross-currency swaps$(26)$(32)
Equity index call optionsEquity index call options(589)132 Equity index call options(164)(589)
Equity index futuresEquity index futures623 (1,293)Equity index futures(1,885)623 
Equity index put optionsEquity index put options(315)(351)Equity index put options(762)(315)
Interest rate swapsInterest rate swaps(261)(265)Interest rate swaps66 (261)
Interest rate swaps - clearedInterest rate swaps - cleared(88)(86)Interest rate swaps - cleared16 (88)
Put-swaptionsPut-swaptions(468)(292)Put-swaptions573 (468)
Treasury futures(311)(773)
Interest rate futuresInterest rate futures(306)(310)
Total return swapsTotal return swaps(61)— 
Fixed index annuity embedded derivativesFixed index annuity embedded derivatives(2)1 
Registered index linked annuity embedded derivativesRegistered index linked annuity embedded derivatives(107)3 
Fixed index annuity embedded derivatives1 — 
Registered index linked annuity embedded derivative3 — 
Variable annuity embedded derivatives2,144 4,648 
Total net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treatiesTotal net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treaties707 1,655 Total net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treaties(2,658)(1,436)
Derivatives related to funds withheld under reinsurance treatiesDerivatives related to funds withheld under reinsurance treatiesDerivatives related to funds withheld under reinsurance treaties
Cross-currency swapsCross-currency swaps3 (2)Cross-currency swaps1 3 
Cross-currency forwardsCross-currency forwards18 19 Cross-currency forwards(10)18 
Treasury futures— — 
Funds withheld embedded derivativeFunds withheld embedded derivative1,281 998 Funds withheld embedded derivative(370)1,281 
Total net gains (losses) on derivative instruments related to funds withheld under reinsurance treatiesTotal net gains (losses) on derivative instruments related to funds withheld under reinsurance treaties1,302 1,015 Total net gains (losses) on derivative instruments related to funds withheld under reinsurance treaties(379)1,302 
Total net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treatiesTotal net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treaties$2,009 $2,670 Total net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treaties$(3,037)$(134)

All of the Company’s trade agreements for freestanding, over-the-counter derivatives, contain credit downgrade provisions that allow a party to assign or terminate derivative transactions if the counterparty’s credit rating declines below an established limit. At March 31, 20222023 and December 31, 2021,2022, the fair value of the Company’s net non-cleared, over-the-counter derivative assets by counterparty were $738$749 million and $1,376$885 million, respectively, and held collateral was $836$695 million and $1,576$858 million, respectively, related to these agreements. At March 31, 20222023 and December 31, 2021,2022, the fair value of the Company’s net non-cleared, over-the-counter derivative liabilities by counterparty were $217$1,208 million and nil,$1,680, respectively, and provided collateral was $324$1,357 million and nil,$1,650, respectively, related to these agreements. If all of the downgrade provisions had been triggered at March 31, 20222023 and December 31, 2021,2022, in aggregate, the Company would have had to disburse $98 millionnil and $200$30 million, respectively, and would have been allowed to claim $107$203 million and nil,$27 million, respectively.

Offsetting Assets and Liabilities

The Company’s derivative instruments, repurchase agreements and securities lending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company recognizes amounts subject to master netting arrangements on a gross basis within the Condensed Consolidated Balance Sheets.

3437

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
The following tables present the gross and net information about the Company’s financial instruments subject to master netting arrangements (in millions):

March 31, 2022March 31, 2023
Gross
Amounts
Recognized		Gross
Amounts
Offset in the Condensed
Consolidated
Balance Sheets		Net Amounts
Presented in
the Condensed Consolidated
Balance Sheets		Gross
Amounts
Recognized		Gross
Amounts
Offset in the Condensed
Consolidated
Balance Sheets		Net Amounts
Presented in
the Condensed Consolidated
Balance Sheets
Gross Amounts Not Offset
in the Condensed Consolidated Balance Sheets		Gross Amounts Not Offset
in the Condensed Consolidated Balance Sheets
Financial
Instruments (1)
Cash
Collateral
Securities
Collateral (2)
Net
Amount
Financial
Instruments (1)
Cash
Collateral
Securities
Collateral (2)
Net
Amount
Financial Assets:Financial Assets:Financial Assets:
Freestanding derivativeFreestanding derivativeFreestanding derivative
assetsassets$926 $— $926 $188 $468 $234 $36 assets$1,051 $— $1,051 $301 $532 $132 $86 
Financial Liabilities:Financial Liabilities:Financial Liabilities:
Freestanding derivativeFreestanding derivativeFreestanding derivative
liabilitiesliabilities$405 $— $405 $188 $— $214 $3 liabilities$1,510 $— $1,510 $301 $2 $1,207 $— 
Securities loanedSecurities loaned15 — 15 — 15 — — Securities loaned39 — 39 — 39 — — 
Repurchase agreementsRepurchase agreements584 — 584 — — 584 — Repurchase agreements1,085 — 1,085 — — 1,085 — 
Total financial liabilitiesTotal financial liabilities$1,004 $— $1,004 $188 $15 $798 $3 Total financial liabilities$2,634 $— $2,634 $301 $41 $2,292 $— 
(1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets.
(2) Excludes initial margin amounts for exchange-traded derivatives.
December 31, 2021December 31, 2022
Gross
Amounts
Recognized		Gross
Amounts
Offset in the
Condensed Consolidated
Balance Sheets		Net Amounts
Presented in
the Condensed Consolidated
Balance Sheets		Gross
Amounts
Recognized		Gross
Amounts
Offset in the
Condensed Consolidated
Balance Sheets		Net Amounts
Presented in
the Condensed Consolidated
Balance Sheets
Gross Amounts Not Offset
in the Condensed Consolidated Balance Sheets		Gross Amounts Not Offset
in the Condensed Consolidated Balance Sheets
Financial
Instruments (1)
Cash
Collateral
Securities
Collateral (2)
Net
Amount
Financial
Instruments (1)
Cash
Collateral
Securities
Collateral (2)
Net
Amount
Financial Assets:Financial Assets:Financial Assets:
Freestanding derivativeFreestanding derivativeFreestanding derivative
assetsassets$1,417 $— $1,417 $41 $817 $555 $4 assets$1,270 $— $1,270 $385 $683 $157 $45 
Financial Liabilities:Financial Liabilities:Financial Liabilities:
Freestanding derivativeFreestanding derivativeFreestanding derivative
liabilitiesliabilities$41 $— $41 $41 $— $— $— liabilities$2,065 $— $2,065 $385 $— $1,638 $42 
Securities loanedSecurities loaned17 — 17 — 17 — — Securities loaned36 — 36 — 36 — — 
Repurchase agreementsRepurchase agreements1,572 — 1,572 — — 1,572 — Repurchase agreements1,012 — 1,012 — — 1,012 — 
Total financial liabilitiesTotal financial liabilities$1,630 $— $1,630 $41 $17 $1,572 $— Total financial liabilities$3,113 $— $3,113 $385 $36 $2,650 $42 
(1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets.
(2) Excludes initial margin amounts for exchange-traded derivatives.

In the above tables, the amounts of assets or liabilities presented in the Company’s Condensed Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables. The above tables exclude net embedded derivative liabilities of $1,767$1,384 million and $4,071$1,136 million as of March 31, 20222023 and December 31, 2021,2022, respectively, as these derivatives are not subject to master netting arrangements. The above tables also exclude the funds withheld embedded derivative asset (liability) of $1,161$2,788 million $(120)and $3,158 million at March 31, 20222023 and December 31, 2021.2022.

3538

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
6. Fair Value Measurements

The following table summarizes the fair value and carrying value of the Company’s financial instruments (in millions)millions, 2022 information recast for the adoption of LDTI):
 March 31, 2022 December 31, 2021  March 31, 2023 December 31, 2022
 Carrying
Value		Fair
Value		 Carrying
Value		Fair
Value		  Carrying
Value		Fair
Value		 Carrying
Value		Fair
Value
AssetsAssets   Assets   
Debt securities (1)
$46,130 $46,130 $44,762 $44,762 
Debt securities (1)
$48,671 $48,671 $53,375 $53,375  Equity securities225 225 393 393 
Equity securities261 261 279 279 
Mortgage loans (1)
11,391 10,826 11,549 10,841 
Mortgage loans (1)
11,620 11,638 11,482 11,910 Limited partnerships3,330 3,330 3,212 3,212 
Limited partnerships3,016 3,016 2,831 2,831 
Policy loans (1)
4,377 4,377 4,377 4,377 
Policy loans (1)
4,463 4,463 4,475 4,475  Freestanding derivative instruments1,051 1,051 1,270 1,270 
Freestanding derivative instruments926 926 1,417 1,417  Federal Home Loan Bank of Indianapolis ("FHLBI") capital stock146 146 146 146 
Federal Home Loan Bank of Indianapolis ("FHLBI") capital stock146 146 125 125  Cash and cash equivalents1,779 1,779 4,298 4,298 
Cash and cash equivalents2,674 2,674 2,623 2,623  Reinsurance recoverable on market risk benefits238 238 221 221 
GMIB reinsurance recoverable232 232 262 262 Market risk benefit assets5,204 5,204 4,865 4,865 
Separate account assets231,198 231,198 248,949 248,949  Separate account assets204,366 204,366 195,906 195,906 
   
LiabilitiesLiabilitiesLiabilities
Annuity reserves (2)
38,164 39,694 40,389 50,116 
Annuity reserves (2)
36,640 32,399 37,357 32,377 
Reserves for guaranteed investment contracts (3)
1,052 1,050 894 923 Market risk benefit liabilities5,560 5,560 5,662 5,662 
Trust instruments supported by funding agreements (3)
6,121 6,084 5,986 6,175 
Reserves for guaranteed investment contracts (3)
989 958 1,128 1,099 
FHLB funding agreements (3)
2,000 1,956 1,950 1,938 
Trust instruments supported by funding agreements (3)
5,597 5,404 5,887 5,760 
Funds withheld payable under reinsurance treaties (1)
27,199 27,199 29,007 29,007 
FHLB funding agreements (3)
2,105 2,007 2,004 2,104 
Long-term debt2,640 2,572 2,649 2,745 
Funds withheld payable under reinsurance treaties (1)
22,254 22,254 22,957 22,957 
Securities lending payable15 15 17 17  Long-term debt2,632 2,403 2,635 2,344 
Freestanding derivative instruments405 405 41 41  Securities lending payable39 39 36 36 
Repurchase agreements584 584 1,572 1,572  Freestanding derivative instruments1,510 1,510 2,065 2,065 
FHLB advances500 500 — — Notes issued by consolidated VIEs2,016 2,016 1,732 1,732 
Separate account liabilities231,198 231,198 248,949 248,949  Repurchase agreements1,085 1,085 1,012 1,012 
Separate account liabilities204,366 204,366 195,906 195,906 
(1) Includes items carried at fair value under the fair value option and trading securities.
(2) Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments.
(3) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets.
(1) Includes items carried at fair value under the fair value option and trading securities.
(2) Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments.
(3) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets.
(1) Includes items carried at fair value under the fair value option and trading securities.
(2) Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments.
(3) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets.
The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on both a recurring and nonrecurring basis reported in the following tables.

Debt and Equity Securities

The fair values for debt and equity securities are determined using information available from independent pricing services, broker-dealer quotes, or internally derived estimates. Priority is given to publicly available prices from independent sources, when available. Securities for which the independent pricing service does not provide a quotation are either submitted to independent broker-dealers for prices or priced internally. Typical inputs used by these three pricing methods include reported trades, benchmark yields, credit spreads, liquidity premiums and/or estimated cash flows based on default and prepayment assumptions.

As a result of typical trading volumes and the lack of specific quoted market prices for most debt securities, independent pricing services will normally derive the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable information as outlined above. If
39
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
there are no recently reported trades, the independent pricing services and broker-dealers may use matrix or pricing model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at relevant market rates. Certain securities are priced using broker-dealer quotes, which may utilize proprietary inputs and models. Additionally, the majority of these quotes are non-binding.
36

Included in the pricing of asset-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment assumptions believed to be relevant for the underlying collateral. Actual prepayment experience may vary from these estimates.

Internally derived estimates may be used to develop a fair value for securities for which the Company is unable to obtain either a reliable price from an independent pricing service or a suitable broker-dealer quote. These fair value estimates may incorporate Level 2 and Level 3 inputs and are generally derived using expected future cash flows, discounted at market interest rates available from market sources based on the credit quality and duration of the instrument. For securities that may not be reliably priced using these internally developed pricing models, a fair value may be estimated using indicative market prices. These prices are indicative of an exit price, but the assumptions used to establish the fair value may not be observable or corroborated by market observable information and, therefore, represent Level 3 inputs.

The Company performs an analysis on the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include initial and ongoing review of third-party pricing service methodologies, review of pricing statistics and trends, back testing recent trades and monitoring of trading volumes. In addition, the Company considers whether prices received from independent broker-dealers represent a reasonable estimate of fair value through the use ofusing internal and external cash flow models, which are developed based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party may be adjusted accordingly.

For those securities that were internally valued at March 31, 20222023 and December 31, 2021,2022, the pricing model used by the Company utilizes current spread levels of similarly rated securities to determine the market discount rate for the security. Furthermore, appropriate risk premiums for illiquidity and non-performance are incorporated in the discount rate. Cash flows, as estimated by the Company using issuer-specific default statistics and prepayment assumptions, are discounted to determine an estimated fair value. 

On an ongoing basis, the Company reviews the independent pricing services’ valuation methodologies and related inputs and evaluates the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy distribution based upon trading activity and the observability of market inputs. Based on the results of this evaluation, each price is classified into Level 1, 2, or 3. Most prices provided by independent pricing services, including broker-dealer quotes, are classified into Level 2 due to their use of market observable inputs.

Limited Partnerships

Fair values for limited partnership interests, which are included in other invested assets, is generally determined using the proportion of the Company’s investment in the value of the net assets of each fund (“NAV equivalent”) as a practical expedient for fair value, and generally, are recorded on a three-month lag. No adjustments to these amounts were deemed necessary at March 31, 20222023 and December 31, 2021.2022. As a result of using the net asset value per share practical expedient, limited partnership interests are not classified in the fair value hierarchy.

The Company’s limited partnership interests are not redeemable, and distributions received are generally the result of liquidation of the underlying assets of the partnerships. The Company generally has the ability under the partnership agreements to sell its interest to another limited partner with the prior written consent of the general partner. In cases when the Company expects to sell the limited partnership interest, the estimated sales price is used to determine the fair value rather than the practical expedient. These limited partnership interests are classified as Level 2 in the fair value hierarchy.

40
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
In cases when a limited partnership’s financial statements are unavailable and a NAV equivalent is not available or practical, the fair value may be based on an internally developed model is used to determine fair value for that fund.or provided by the general partner as determined using private transactions, information obtained from the primary co-investor or underlying company, or financial metrics provided by the lead sponsor. These investments are classified as Level 3 in the fair value hierarchy.
37

Policy Loans

Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The reinsurance related component of policy loans at fair value under the fair value option have been classified as Level 3 within the fair value hierarchy.

Freestanding Derivative Instruments

Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, which the Company would receive or pay upon sale or termination of the contracts at the reporting date. Changes in fair value are included in net gains (losses) on derivatives and investments. Freestanding derivatives priced using third party pricing services incorporate inputs that are predominantly observable in the market. Inputs used to value derivatives include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels.

Freestanding derivative instruments classified as Level 1 include futures, which are traded on active exchanges. Freestanding derivative instruments classified as Level 2 include interest rate swaps, cross currency swaps, cross-currency forwards, credit default swaps, total return swaps, put-swaptions and certain equity index call and put options. These derivative valuations are determined by third-party pricing services using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Freestanding derivative instruments classified as Level 3 include interest rate contingent options that are valued by third-party pricing services utilizing significant unobservable inputs.

Cash and Cash Equivalents

Cash and cash equivalents primarily include money market instruments and bank deposits. Cash equivalents also includes all highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase. Certain money market instruments are valued using unadjusted quoted prices in active markets and are classified as Level 1.

Funds Withheld Payable Under Reinsurance Treaties

The funds withheld payable under reinsurance treaties includes both the funds withheld payable which are held at fair value under the fair value option and the funds withheld embedded derivative liability.derivative. The fair value of the funds withheld payable which are held at fair value under the fair value option is equal to the fair value of the assets held as collateral, which primarily consists of policy loans using industry standard valuation techniques. The funds withheld embedded derivative liability is determined based upon a total return swap technique referencing the fair value of the investments held under the reinsurance contract and requires certain significant unobservable inputs. The funds withheld payable which are held at fair value under the fair value option and the funds withheld embedded derivative are considered Level 3 in the fair value hierarchy.

41
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Separate Account Assets

Separate account assets are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2 assets.

Market Risk Benefits

38

Variable Annuity GuaranteesAnnuities

Variable annuity contracts issued by the Company offermay include various guaranteed minimum death, withdrawal, income and accumulation benefits. Certain benefits including non-life contingent components ofwhich are classified as MRBs and measured at fair value. The Company discontinued offering guaranteed minimum withdrawalinterest benefits (“GMWB”GMIB”) in 2009 and guaranteed minimum withdrawal benefits for life (“GMWB for Life”), guaranteed minimum accumulation benefits (“GMAB”), and the reinsurance recoverable on the Company’s guaranteed minimum income benefits (“GMIB”), are recorded at fair value. Guaranteed benefits that are not subject to fair value accounting are accounted for as insurance benefits. The Company discontinued offering the GMIB in 2009 and GMAB in 2011.

GMABsOur MRB assets and non-life contingent components of GMWB and GMWB for Life contractsMRB liabilities are recorded atreported separately on our Condensed Consolidated Balance Sheets. Increases to an asset or decreases to a liability are described as favorable changes to fair value with changesvalue. Changes in fair value recordedare reported in Market risk benefits (gains) losses, net gains (losses) on derivatives and investments. Thethe Condensed Consolidated Income Statements. However, the change in fair value related to our own non-performance risk is recognized as a component of the reserveother comprehensive income and is basedreported in Change in non-performance on market risk benefits, net of tax expense (benefit) on the expectationsCondensed Consolidated Statements of Comprehensive Income (Loss).

Variable annuity guaranteed benefit features classified as MRBs, which have explicit fees, are measured using the attributed fee method. Under the attributed fee method, fair value is measured as the difference between the present value of projected future benefit paymentsliabilities and certain future fees associated with the benefits.present value of projected attributed fees. At the inception of the contract, the Company attributes to the embedded derivativeMRB a portion of ridertotal fees collected from the contract holder, which is then held static in future valuations. Those fees, generally referred to as the attributed fees, are set such that the present value of the attributed fees is equal to the present value of future claims expected to be paid underassessed against the guaranteed benefitcontract holder's account value to offset the projected claims over the lifetime of the contract. The attributed fee is expressed as a percentage of total projected future fees at the inception of the contract. This percentage of total projected fees is considered a fixed term of the MRB feature and is held static over the life of the contract. This percentage may not exceed 100% of the total projected contract fees as of contract inception. As the Company may issue contracts that have projected future liabilities greater than the projected future guaranteed benefit fees at issue, the Company may also attribute mortality and expense charges when performing this calculation. The percentage of guaranteed benefit fees and the percentage of mortality and expense charges may not exceed 100% of the total projected fees as of contract inception. In subsequent valuations, both the present value of future benefitsprojected liabilities and the present value of projected attributed fees are revaluedremeasured based on current market conditions and policyholder behavior assumptions. The difference between each of the two components represents the fair value of the embedded derivative. Thus, when unfavorable equity market movements cause declines in the contract holder’s account value relative to the guarantee benefit, the valuation of future expected claims would generally increase relative to the measurement performed at the inception of the contract, resulting in an increase in the fair value of the embedded derivative liability (and vice versa).

The Company’s GMIB book is reinsured throughCompany has ceded the guaranteed minimum income benefit (“GMIB”) features elected on certain annuity contracts to an unrelated party, and due to the net settlement provisions of theparty. The GMIBs ceded under this reinsurance agreement, thistreaty are classified as an MRB in their entirety. The reinsurance contract meets the definition of a derivative. Accordingly, the GMIB reinsurance agreement is recordedmeasured at fair value with changesand reported in Reinsurance recoverable on market risk benefits.Changes in fair value are recorded in net gains (losses) on derivatives and investments.market risk benefits (gains) losses, net. Due to the inability to economically reinsure or hedge new issues of the GMIB, the Company discontinued offering the benefit in 2009.

Fair values for GMWB, GMWB for Life, and GMAB embedded derivatives, as well asMRBs related to variable annuities, including the contract reinsuring GMIB reinsurance recoverables,features, are calculated using internally developed models because active, observable markets do not exist for those guaranteed benefits.

The fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behavior. Capital market inputs include expected market rates of return, market volatility, correlations of market index returns to funds, fund performancereturns, and discount rates.rates, which includes an adjustment for non-performance risk. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable.

42
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
At each valuation date, the fair value calculation reflects expected returns based on the greater of LIBOR swap rates and constant maturity treasury rates as of that date to determine the value of expected future cash flows produced in a stochastic process. Volatility assumptions are based on a weighting of available market data for implied market volatility for durations up to 10 years, grading to a historical volatility level by year 15, where such long-term historical volatility levels contain an explicit risk margin. Additionally, non-performanceNon-performance risk is incorporated into the calculation through the useadjustment of discount ratesthe risk-free rate curve based on spreads indicated by a blend of yields on similarly-rated peer debt and yields on JFI debt (adjusted to operating company levels). Risk margins are also incorporated into the model assumptions, particularly for policyholder behavior. Estimates of future policyholder behavior are subjective and are based primarily on the Company’s experience.

As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for this component of the fair value model.

39

The use of the models and assumptions described above requires a significant amount of judgment. Management believes the aggregation of each of these componentsthis results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to or from a willing buyer or seller, if one existed, for those market participants to assume the risks associated with the guaranteed benefits and the related reinsurance. However, the ultimate settlement amount of the asset or liability, which is currently unknown, could likely be significantly different than this fair value.

Fixed Index Annuities

The longevity riders issued on fixed index annuities are classified as MRBs and measured at fair value. Similar to the variable annuity guaranteed benefit features, these contracts have explicit fees and are measured using the attributed fee method. The Company attributes a percentage of total projected future fees expected to be assessed against the policyholder to offset the projected future claims over the lifetime of the contract. If the fees attributed are insufficient to offset the claims at issue, the shortfall is borrowed from the host contract rather than recognizing a loss at inception.

RILA

RILA guaranteed benefit features are classified as MRBs and measured at fair value. Unlike variable or fixed index annuities, RILA products do not have explicit fees and are measured using an option-based method. The fair value measurement represents the present value of future claims payable by the MRB feature. At inception, the value of the MRB is deducted from the value of the contract resulting in no gain or loss.

See Note 12 of the Notes to Condensed Consolidated Financial Statements for more information regarding MRBs.

Fixed Index Annuities

The fair value of the index-linked crediting derivative feature embedded in fixed index annuities, embeddedincluded in Annuity Reserves in the above tables, is calculated using the closed form Black-Scholes Option Pricing model or Monte Carlo simulations, as appropriate for the type of option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires, is calculated using the closed form Black-Scholes Option Pricing model or Monte Carlo simulations, as appropriate for the type of option.expires. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders.

RILA

The fair value of the RILAindex-linked crediting derivative feature embedded option,in RILAs, included in Annuity Reserves in the above table, is calculated using the closed form Black-Scholes Option Pricing model, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires, is calculated using the closed form Black-Scholes Option Pricing model.expires. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders.

Fair Value OptionNotes Issued by Consolidated VIEs

The Company has electedThese notes, at fair value under the fair value option, are based on the fair values of corresponding fixed maturity collateral. The CLO liabilities are also reduced by the fair value of the beneficial interest the Company retains in the CLO and the carrying value of any beneficial interests that represent compensation for certain funds withheld assets, whichservices. As the notes are heldvalued based on the reference collateral, they are classified as collateral for reinsurance, totaling $3,634 million and $3,632 million at March 31, 2022 and December 31, 2021, respectively, as discussed above.Level 2.
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Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements

Fair Value Option

The Company elected the fair value option for debt securities related to certain consolidated investments totaling $1,628$2,093 million and $1,546$2,014 million at March 31, 20222023 and December 31, 2021,2022, respectively. These debt securities are reflected on the Company’s Condensed Consolidated Balance Sheets as debt securities, at fair value under the fair value option.

The Company has elected the fair value option for certain funds withheld assets, which are held as collateral for reinsurance, totaling $4,069 million and $4,160 million at March 31, 2023 and December 31, 2022, respectively, as discussed above, and includes mortgage loans as discussed below.

The Company elected the fair value option for certain mortgage loans held under the funds withheld reinsurance agreement.agreement with Athene. The fair value option was elected for these mortgage loans, purchased or funded after December 31, 2021, to mitigate inconsistency in earnings that would otherwise result between these mortgage loan assets and the funds withheld liability, including the associated embedded derivative, and are valued using third-party pricing services. Changes in fair value are reflected in net investment income on the Condensed Consolidated Income Statements.

The fair value and aggregate contractual principal for mortgage loans where the fair value option was elected after December 31, 2021, were as follows (in millions):

March 31,
2022
Fair value$190 
Aggregate contractual principal191 
March 31,December 31,
20232022
Fair value$480 $582 
Aggregate contractual principal491 591 

As of March 31, 2022,2023, no loans for which the fair value option was elected were in non-accrual status, and no loans were more than 90 days past due and still accruing interest.

The Company elected the fair value option for notes issued by consolidated VIEs totaling $2,016 million and $1,732 million at March 31, 2023 and December 31, 2022, respectively.

Income and changes in unrealized gains and losses on other assets for which the Company has elected the fair value option are immaterial to the Company’s Condensed Consolidated Financial Statements.


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44

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize the Company’s assets and liabilities that are carried at fair value by hierarchy levels (in millions)millions, 2022 information recast for the adoption of LDTI):

March 31, 2022March 31, 2023
TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
AssetsAssetsAssets
Debt securities
U.S. government securities$4,893$4,892$1$—
Debt securitiesOther government securities1,507—1,507—
U.S. government securities$3,271$3,271$—$—Public utilities5,472—5,472—
Other government securities1,543—1,543—Corporate securities26,684—26,65826
Public utilities5,988—5,988—Residential mortgage-backed428—428—
Corporate securities28,878—28,86414Commercial mortgage-backed1,594—1,594—
Residential mortgage-backed498—498—Other asset-backed securities5,552—5,552—
Commercial mortgage-backed1,686—1,686—Equity securities2251698111
Other asset-backed securities6,807—6,807—Mortgage loans480—480
Equity securities2617274115
Limited partnerships (1)
550—102448
Mortgage loans190—190Policy loans3,427—3,427
Limited partnerships (1)
1—1Freestanding derivative instruments1,051—1,051—
Policy loans3,472—3,472
Freestanding derivative instruments926—926—Cash and cash equivalents1,779—
Cash and cash equivalents2,674—Reinsurance recoverable on market risk benefits238—238
GMIB reinsurance recoverable232—232Market risk benefit assets5,204—5,204
Separate account assets231,198—231,198—Separate account assets204,366—204,366—
Total$287,625$6,017$277,584$4,024Total$263,450$6,687$246,829$9,934
LiabilitiesLiabilitiesLiabilities
Embedded derivative liabilities (2)
$1,767$—$1,315$452
Embedded derivative liabilities (2)
$1,384$—$1,384$—
Funds withheld payable under reinsurance treaties (3)
2,479—2,479
Funds withheld payable under reinsurance treaties (3)
803—803
Freestanding derivative instruments405—405—Freestanding derivative instruments1,510—1,510—
Total$4,651$—$1,720$2,931Notes issued by consolidated VIEs2,016—2,016—
Market risk benefit liabilities5,560—5,560
(1) Excludes $3,015 million of limited partnership investments measured at NAV.
Total$11,273$—$4,910$6,363
(2) Includes the embedded derivative liabilities of $452 million related to GMWB reserves included in reserves for future policy benefits and claims payable, $16 million of RILA and $1,299 million of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets.
(3) Includes the Athene embedded derivative asset of $1,161 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
(1) Excludes $2,780 million of limited partnership investments measured at NAV.
(2) Includes the embedded derivative liabilities of $421 million related to RILA and $963 million liability of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets.
(3) Includes the Athene embedded derivative asset of $2,788 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.

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Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
 December 31, 2021  December 31, 2022
 TotalLevel 1Level 2Level 3  TotalLevel 1Level 2Level 3
AssetsAssetsAssets
Debt securities
U.S. government securities$5,185 $5,184 $1 $— 
Debt securities Other government securities1,467 — 1,467 — 
U.S. government securities$4,321 $4,321 $— $—  Public utilities5,225 — 5,225 — 
Other government securities1,619 — 1,619 —  Corporate securities25,146 — 25,090 56 
Public utilities6,715 — 6,715 —  Residential mortgage-backed464 — 464 — 
Corporate securities31,146 — 31,137 9  Commercial mortgage-backed1,638 — 1,638 — 
Residential mortgage-backed569 — 569 —  Other asset-backed securities5,637 — 5,637 — 
Commercial mortgage-backed2,038 — 2,038 —  Equity securities393 165 106 122 
Other asset-backed securities6,967 — 6,967 — Mortgage loans582 — — 582 
Equity securities279 111 56 112 
Limited partnerships (1)
440 — — 440 
Limited partnerships (1)
18 — 17 1 Policy loans3,419 — — 3,419 
Policy loans3,467 — — 3,467  Freestanding derivative instruments1,270 — 1,270 — 
Freestanding derivative instruments1,417 — 1,417 —  Cash and cash equivalents4,298 4,298 — — 
Cash and cash equivalents2,623 2,623 — —  Reinsurance recoverable on market risk benefits221 — — 221 
GMIB reinsurance recoverable262 — — 262 Market risk benefit assets4,865 — — 4,865 
Separate account assets248,949 — 248,949 —  Separate account assets195,906 — 195,906 — 
Total$310,390 $7,055 $299,484 $3,851  Total$256,156 $9,647 $236,804 $9,705 
   
LiabilitiesLiabilitiesLiabilities
Embedded derivative liabilities (2)
$4,071 $— $1,445 $2,626 
Embedded derivative liabilities (2)
$1,135 $— $1,135 $— 
Funds withheld payable under reinsurance treaties (3)
3,759 — — 3,759 
Funds withheld payable under reinsurance treaties (3)
424 — — 424 
Freestanding derivative instruments41 — 41 —  Freestanding derivative instruments2,065 — 2,065 — 
Total$7,871 $— $1,486 $6,385 Notes issued by consolidated VIEs1,732 — 1,732 — 
Market risk benefit liabilities5,662 — — 5,662 
(1) Excludes $2,813 million of limited partnership investments measured at NAV.
 Total$11,018 $— $4,932 $6,086 
(2) Includes the embedded derivative liabilities of $2,626 million related to GMWB reserves included in reserves for future policy benefits and claims payable, $6 million of RILA and $1,439 million of fixed index annuities, both included in other contract holder funds on the consolidated balance sheets.
(3) Includes the Athene embedded derivative liability of $120 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
(1) Excludes $2,772 million of limited partnership investments measured at NAV.
(2) Includes the embedded derivative liabilities of $205 million related to RILA and $931 million of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets.
(3) Includes the Athene embedded derivative asset of $3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.



4246

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

Level 3 Assets and Liabilities by Price Source

The table below presents the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources (in millions)millions, 2022 information recast for the adoption of LDTI):

March 31, 2023
AssetsAssetsTotalInternalExternal
Debt securities:Debt securities:
CorporateCorporate$26 $— $26 
Equity securitiesEquity securities111 1 110 
Mortgage loans Mortgage loans480 — 480 
Limited partnershipsLimited partnerships448 1 447 
Policy loansPolicy loans3,427 3,427 — 
Reinsurance recoverable on market risk benefitsReinsurance recoverable on market risk benefits238 238 — 
Market risk benefit assetsMarket risk benefit assets5,204 5,204 — 
TotalTotal$9,934 $8,871 $1,063 
LiabilitiesLiabilities
Funds withheld payable under reinsurance treaties (1)
Funds withheld payable under reinsurance treaties (1)
803 803 — 
Market risk benefit liabilitiesMarket risk benefit liabilities5,560 5,560 — 
TotalTotal$6,363 $6,363 $— 
(1) Includes the Athene embedded derivative asset of $2,788 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
(1) Includes the Athene embedded derivative asset of $2,788 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
March 31, 2022December 31, 2022
AssetsAssetsTotalInternalExternalAssetsTotalInternalExternal
Debt securities:Debt securities:Debt securities:
CorporateCorporate$14 $— $14 Corporate$56 $— $56 
Equity securitiesEquity securities115 1 114 Equity securities122 1 121 
Mortgage loans Mortgage loans190 — 190 Mortgage loans582 — 582 
Limited partnershipsLimited partnerships1 1 — Limited partnerships440 8 432 
Policy loansPolicy loans3,472 3,472 — Policy loans3,419 3,419 — 
GMIB reinsurance recoverable232 232 — 
Reinsurance recoverable on market risk benefitsReinsurance recoverable on market risk benefits221 221 — 
Market risk benefit assetsMarket risk benefit assets4,865 4,865 — 
TotalTotal$4,024 $3,706 $318 Total$9,705 $8,514 $1,191 
LiabilitiesLiabilitiesLiabilities
Embedded derivative liabilities (1)
$452 $452 $— 
Funds withheld payable under reinsurance treaties (2)
2,479 2,479 — 
Funds withheld payable under reinsurance treaties (1)
Funds withheld payable under reinsurance treaties (1)
424 424 — 
Market risk benefit liabilitiesMarket risk benefit liabilities5,662 5,662 — 
TotalTotal$2,931 $2,931 $— Total$6,086 $6,086 $— 
(1) Includes the embedded derivative related to GMWB reserves.
(2) Includes the Athene embedded derivative asset of $1,161 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
December 31, 2021
AssetsTotalInternalExternal
Debt securities:
Corporate$9 $— $9 
Equity securities112 1 111 
Limited partnerships1 1 — 
Policy loans3,467 3,467 — 
GMIB reinsurance recoverable262 262 — 
Total$3,851 $3,731 $120 
Liabilities
Embedded derivative liabilities (1)
$2,626 $2,626 $— 
Funds withheld payable under reinsurance treaties (2)
3,759 3,759 — 
Total$6,385 $6,385 $— 
(1) Includes the embedded derivative related to GMWB reserves.
(2) Includes the Athene embedded derivative liability of $120 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
(1) Includes the Athene embedded derivative asset of $3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
(1) Includes the Athene embedded derivative asset of $3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
External pricing sources for securities represent unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available.


4347

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Quantitative Information Regarding Internally-Priced Level 3 Assets and Liabilities

The table below presents quantitative information on significant internally-priced Level 3 assets and liabilities that use significant unobservable inputs (in millions)millions, 2022 information recast for the adoption of LDTI):

As of March 31, 20222023
Fair
Value		Valuation Technique(s)Significant Unobservable Input(s)Assumption or Input RangeImpact of Increase in Input on Fair Value
Assets
GMIB reinsuranceReinsurance recoverable on market risk benefits$232238 Discounted cash
flow
Mortality(1)
0.01% - 23.42%23.33%Decrease
Lapse(2)
3.30%2.97% - 9.00%8.10%Decrease
Utilization(3)
0.00% - 20.00%Increase
Withdrawal(4)
3.75%47.50% - 4.50%52.50%Increase
NonperformanceNon-performance risk(5)
0.31%1.21% - 1.83%2.41%Decrease
Long-term Equity Volatility(6)
18.50%18.13% - 22.44%22.50%Increase

Market risk benefit assets$5,204 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
1.21% - 2.41%Decrease
Long-term Equity Volatility(6)
18.13% - 22.50%Increase
Liabilities
Embedded derivativeMarket risk benefit liabilities$4525,560 Discounted cash flow
Mortality(1)
0.04%0.01% - 21.45%23.33%Decrease
Lapse(2)
0.20%0.05% - 30.90%41.28%Decrease
Utilization(3)
5.00%0.00% - 100.00%Increase
Withdrawal(4)
58.00%11.25% - 97.00%100.00%Increase
NonperformanceNon-performance risk(5)
0.31%1.21% - 1.83%2.41%Decrease
Long-term Equity Volatility(6)
18.50%18.13% - 22.44%22.50%Increase

(1)    Mortality rates vary by attained age, tax qualification status, GMWBguaranteed benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied.
(2)     Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when GMWBguaranteed benefits are utilized.
(3)     The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.
(4)     The withdrawal rate represents the utilization rate of the contract’s free partial withdrawal provision (GMIB) or the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount (GMWB). Withdrawalunder the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates on contracts with a GMIB vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions.
(5)    NonperformanceNon-performance risk adjustment is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.
(6)    Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available.

4448

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
As of December 31, 20212022
Fair
Value		Valuation Technique(s)Significant Unobservable Input(s)Assumption or Input RangeImpact of Increase in Input on Fair Value
Assets
GMIB reinsuranceReinsurance recoverable on market risk benefits$262221 Discounted cash flow
Mortality(1)
0.01% - 23.42%23.33%Decrease
Lapse(2)
3.30%2.97% - 9.00%8.10%Decrease
Utilization(3)
0.00% - 20.00%Increase
Withdrawal(4)
3.75%47.50% - 4.50%52.50%Increase
NonperformanceNon-performance risk(5)
0.11%0.64% - 1.50%2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 22.06%23.68%Increase
Market risk benefit assets$4,865 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
0.64% - 2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 23.68%Increase
Liabilities
Embedded derivativeMarket risk benefit liabilities$2,6265,662 Discounted cash flow
Mortality(1)
0.04%0.01% - 21.45%23.33%Decrease
Lapse(2)
0.20%0.05% - 30.90%41.28%Decrease
Utilization(3)
5.00%0.00% - 100.00%Increase
Withdrawal(4)
58.00%11.25% - 97.00%100.00%Increase
NonperformanceNon-performance risk(5)
0.11%0.64% - 1.50%2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 22.06%23.68%Increase
(1)    Mortality rates vary by attained age, tax qualification status, GMWBguaranteed benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied.
(2)     Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when GMWBguaranteed benefits are utilized.
(3)     The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.
(4)     The withdrawal rate represents the utilization rate of the contract’s free partial withdrawal provision (GMIB) or the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount (GMWB). Withdrawalunder the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates on contracts with a GMIB vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions.
(5)    NonperformanceNon-performance risk adjustment is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.
(6)    Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available.

4549

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Sensitivity to Changes in Unobservable Inputs

The following is a general description of sensitivities of significant unobservable inputs and their impact on the fair value measurement for the assets and liabilities reflected in the tables above.

At both March 31, 2022 and December 31, 2021, securities of $2 million are fair valued using techniques incorporating unobservable inputs and are classified in Level 3 of the fair value hierarchy. For these assets, their unobservable inputs and ranges of possible inputs do not materially affect their fair valuations and have been excluded from the quantitative information in the tables above.Policy Loans

Policy loans are loans the Company issues to contract holders that support funds withheld reinsurance agreements that are helduse the cash surrender value of their life insurance policy or annuity contract as collateral. At both March 31, 2023 and December 31, 2022, $3.4 billion these loans were carried at fair value, underwhich the Company believes is equal to unpaid principal balances, plus accrued investment income. At both March 31, 2023 and December 31, 2022, the Company had $1.0 billion of policy loans not held as collateral for reinsurance, which were carried at the unpaid principal balances.

33
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
Other Invested Assets

Other invested assets primarily include investments in Federal Home Loan Bank capital stock, limited partnerships (“LPs”), and real estate. Federal Home Loan Bank capital stock is carried at cost and adjusted for any impairment. At both March 31, 2023 and December 31, 2022, FHLB capital stock had carrying value of $146 million, respectively. Real estate is carried at the lower of depreciated cost or fair value. At March 31, 2023 and December 31, 2022, real estate totaling $235 million and $237 million, respectively, included foreclosed properties with a book value of nil at both March 31, 2023 and December 31, 2022, respectively. Carrying values for limited partnership investments are generally determined by using the proportion of the Company’s investment in each fund (Net Asset Value (“NAV”) equivalent) as a practical expedient for fair value, and generally are recorded on a three-month lag, with changes in value included in net investment income. At March 31, 2023 and December 31, 2022, investments in LPs had carrying values of $3,330 million and $3,212 million, respectively.

In June 2021, the Company entered into an arrangement to sell $420 million of limited partnership investments, of which $236 million and $168 million were sold in the second and third quarter of 2021, respectively, and the remainder was sold in January 2022. The LPs sold were carried at estimated sales price.

Securities Lending

The Company has entered into securities lending agreements with agent banks whereby blocks of securities are loaned to third parties, primarily major brokerage firms. As of March 31, 2023 and December 31, 2022, the estimated fair value of loaned securities was $38 million and $35 million, respectively. The agreements require a minimum of 102% of the fair value optionof the loaned securities to be held as collateral, calculated daily. To further minimize the credit risks related to these programs, the financial condition of counterparties is monitored on a regular basis. At March 31, 2023 and December 31, 2022, cash collateral received in the amount of $39 million and $36 million, respectively, was invested by the agent banks and included in cash and cash equivalents of the Company. A securities lending payable for the overnight and continuous loans is included in liabilities in the amount of cash collateral received. Securities lending transactions are used to generate income. Income and expenses associated with these transactions are reported as net investment income.

Repurchase Agreements

The Company routinely enters into repurchase agreements whereby the Company agrees to sell and repurchase securities. These agreements are accounted for as financing transactions, with the assets and associated liabilities included in the Condensed Consolidated Balance Sheets. Short-term borrowings under such agreements averaged $808 million for three months ended March 31, 2023 and $311 million for the year ended December 31, 2022, with weighted average interest rates of 3.87% and 2.54%, respectively. At March 31, 2023 and December 31, 2022, the outstanding repurchase agreement balance was $1,085 million and $1,012 million, respectively, collateralized with U.S. Treasury notes and corporate securities and maturing within 30 days, and was included within repurchase agreements and securities lending payable in the Condensed Consolidated Balance Sheets. In the event of a decline in the fair value of the pledged collateral under these agreements, the Company may be required to transfer cash or additional securities as pledged collateral. Interest expense totaled $8 million and nil both for the three months ended March 31, 2023 and 2022, respectively. The highest level of short-term borrowings at any month end was $1,085 million and $584 million for the three months ended March 31, 2023 and 2022, respectively.

34
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments

5. Derivative Instruments

The Company’s business model includes the acceptance, monitoring and mitigation of risk. Specifically, the Company considers, among other factors, exposures to interest rate and equity market movements, foreign exchange rates and other asset or liability prices. The Company uses derivative instruments to mitigate or reduce these risks in accordance with established policies and goals. The Company’s derivative holdings, while effective in managing defined risks, are not structured to meet accounting requirements to be designated as hedging instruments. As a result, freestanding derivatives are carried at fair value with changes recorded in net gains (losses) on derivatives and investments.

A summary of the aggregate contractual or notional amounts and fair values of the Company’s freestanding and embedded derivative instruments are as follows (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023
Contractual/AssetsLiabilitiesNet
NotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Freestanding derivatives
Cross-currency swaps$1,854 $75 $123 $(48)
Equity index call options17,500 247 — 247 
Equity index futures (2)
16,328 — — — 
Equity index put options43,500 643 — 643 
Interest rate swaps7,728 7 148 (141)
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptions22,000 — 1,157 (1,157)
Interest rate futures (2)
81,365 — — — 
Total return swaps1,318 — 61 (61)
Total freestanding derivatives193,093 972 1,489 (517)
Embedded derivatives
Fixed index annuity embedded derivatives (3)
N/A— 963 (963)
Registered index linked annuity embedded derivatives (3)
N/A— 421 (421)
Total embedded derivativesN/A— 1,384 (1,384)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps158 23 1 22 
Cross-currency forwards1,417 56 20 36 
Funds withheld embedded derivative (4)
N/A2,788 — 2,788 
Total derivatives related to funds withheld under reinsurance treaties1,575 2,867 21 2,846 
Total$194,668 $3,839 $2,894 $945 

(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The non-performance risk adjustment is included in the balance above.
(4) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

35
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
December 31, 2022
Contractual/AssetsLiabilitiesNet
NotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Freestanding derivatives
Cross-currency swaps$1,825 $73 $104 $(31)
Equity index call options17,500 106 — 106 
Equity index futures (2)
19,760 — — — 
Equity index put options30,500 958 — 958 
Interest rate swaps7,728 5 231 (226)
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptions25,000 — 1,711 (1,711)
Interest rate futures (2)
105,261 — — — 
Total return swaps739 31 — 31 
Total freestanding derivatives209,813 1,173 2,046 (873)
Embedded derivatives
Fixed index annuity embedded derivatives (3)
N/A— 931 (931)
Registered index linked annuity embedded derivatives (3)
N/A— 205 (205)
Total embedded derivativesN/A— 1,136 (1,136)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps158 23 1 22 
Cross-currency forwards1,490 74 18 56 
Funds withheld embedded derivative (4)
N/A3,158 — 3,158 
Total derivatives related to funds withheld under reinsurance treaties1,648 3,255 19 3,236 
Total$211,461 $4,428 $3,201 $1,227 
(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The non-performance risk adjustment is included in the balance above.
(4) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

36
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
The following table reflects the results of the Company’s derivatives, including gains (losses) and change in fair value of freestanding derivative instruments and embedded derivatives (in millions, 2022 information recast for the adoption of LDTI):

Three Months Ended March 31,
20232022
Derivatives excluding funds withheld under reinsurance treaties
Cross-currency swaps$(26)$(32)
Equity index call options(164)(589)
Equity index futures(1,885)623 
Equity index put options(762)(315)
Interest rate swaps66 (261)
Interest rate swaps - cleared16 (88)
Put-swaptions573 (468)
Interest rate futures(306)(310)
Total return swaps(61)— 
Fixed index annuity embedded derivatives(2)1 
Registered index linked annuity embedded derivatives(107)3 
Total net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treaties(2,658)(1,436)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps1 3 
Cross-currency forwards(10)18 
Funds withheld embedded derivative(370)1,281 
Total net gains (losses) on derivative instruments related to funds withheld under reinsurance treaties(379)1,302 
Total net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treaties$(3,037)$(134)

All the Company’s trade agreements for freestanding, over-the-counter derivatives, contain credit downgrade provisions that allow a party to assign or terminate derivative transactions if the counterparty’s credit rating declines below an established limit. At March 31, 2023 and December 31, 2022, the fair value of the Company’s net non-cleared, over-the-counter derivative assets by counterparty were $749 million and $885 million, respectively, and held collateral was $695 million and $858 million, respectively, related to these agreements. At March 31, 2023 and December 31, 2022, the fair value of the Company’s net non-cleared, over-the-counter derivative liabilities by counterparty were $1,208 million and $1,680, respectively, and provided collateral was $1,357 million and $1,650, respectively, related to these agreements. If all the downgrade provisions had been triggered at March 31, 2023 and December 31, 2022, in aggregate, the Company would have had to disburse nil and $30 million, respectively, and would have been allowed to claim $203 million and $27 million, respectively.

Offsetting Assets and Liabilities

The Company’s derivative instruments, repurchase agreements and securities lending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company recognizes amounts subject to master netting arrangements on a gross basis within the Condensed Consolidated Balance Sheets.

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Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
The following tables present the gross and net information about the Company’s financial instruments subject to master netting arrangements (in millions):

March 31, 2023
Gross
Amounts
Recognized		Gross
Amounts
Offset in the Condensed
Consolidated
Balance Sheets		Net Amounts
Presented in
the Condensed Consolidated
Balance Sheets
Gross Amounts Not Offset
in the Condensed Consolidated Balance Sheets
Financial
Instruments (1)
Cash
Collateral
Securities
Collateral (2)
Net
Amount
Financial Assets:
Freestanding derivative
assets$1,051 $— $1,051 $301 $532 $132 $86 
Financial Liabilities:
Freestanding derivative
liabilities$1,510 $— $1,510 $301 $2 $1,207 $— 
Securities loaned39 — 39 — 39 — — 
Repurchase agreements1,085 — 1,085 — — 1,085 — 
Total financial liabilities$2,634 $— $2,634 $301 $41 $2,292 $— 
(1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets.
(2) Excludes initial margin amounts for exchange-traded derivatives.
December 31, 2022
Gross
Amounts
Recognized		Gross
Amounts
Offset in the
Condensed Consolidated
Balance Sheets		Net Amounts
Presented in
the Condensed Consolidated
Balance Sheets
Gross Amounts Not Offset
in the Condensed Consolidated Balance Sheets
Financial
Instruments (1)
Cash
Collateral
Securities
Collateral (2)
Net
Amount
Financial Assets:
Freestanding derivative
assets$1,270 $— $1,270 $385 $683 $157 $45 
Financial Liabilities:
Freestanding derivative
liabilities$2,065 $— $2,065 $385 $— $1,638 $42 
Securities loaned36 — 36 — 36 — — 
Repurchase agreements1,012 — 1,012 — — 1,012 — 
Total financial liabilities$3,113 $— $3,113 $385 $36 $2,650 $42 
(1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets.
(2) Excludes initial margin amounts for exchange-traded derivatives.

In the above tables, the amounts of assets or liabilities presented in the Company’s Condensed Consolidated Balance Sheets are excludedoffset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables. The above tables exclude net embedded derivative liabilities of $1,384 million and $1,136 million as of March 31, 2023 and December 31, 2022, respectively, as these derivatives are not subject to master netting arrangements. The above tables also exclude the funds withheld embedded derivative asset (liability) of $2,788 million and $3,158 million at March 31, 2023 and December 31, 2022.

38
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
6. Fair Value Measurements

The following table summarizes the fair value and carrying value of the Company’s financial instruments (in millions, 2022 information recast for the adoption of LDTI):
  March 31, 2023 December 31, 2022
  Carrying
Value		Fair
Value		 Carrying
Value		Fair
Value
Assets     
 
Debt securities (1)
$46,130 $46,130 $44,762 $44,762 
 Equity securities225 225 393 393 
 
Mortgage loans (1)
11,391 10,826 11,549 10,841 
Limited partnerships3,330 3,330 3,212 3,212 
 
Policy loans (1)
4,377 4,377 4,377 4,377 
 Freestanding derivative instruments1,051 1,051 1,270 1,270 
 Federal Home Loan Bank of Indianapolis ("FHLBI") capital stock146 146 146 146 
 Cash and cash equivalents1,779 1,779 4,298 4,298 
 Reinsurance recoverable on market risk benefits238 238 221 221 
Market risk benefit assets5,204 5,204 4,865 4,865 
 Separate account assets204,366 204,366 195,906 195,906 
  
Liabilities
 
Annuity reserves (2)
36,640 32,399 37,357 32,377 
Market risk benefit liabilities5,560 5,560 5,662 5,662 
 
Reserves for guaranteed investment contracts (3)
989 958 1,128 1,099 
 
Trust instruments supported by funding agreements (3)
5,597 5,404 5,887 5,760 
 
FHLB funding agreements (3)
2,105 2,007 2,004 2,104 
 
Funds withheld payable under reinsurance treaties (1)
22,254 22,254 22,957 22,957 
 Long-term debt2,632 2,403 2,635 2,344 
 Securities lending payable39 39 36 36 
 Freestanding derivative instruments1,510 1,510 2,065 2,065 
Notes issued by consolidated VIEs2,016 2,016 1,732 1,732 
 Repurchase agreements1,085 1,085 1,012 1,012 
 Separate account liabilities204,366 204,366 195,906 195,906 
(1) Includes items carried at fair value under the fair value option and trading securities.
(2) Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments.
(3) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets.
The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on a recurring basis reported in the following tables.

Debt and Equity Securities

The fair values for debt and equity securities are determined using information available from independent pricing services, broker-dealer quotes, or internally derived estimates. Priority is given to publicly available prices from independent sources, when available. Securities for which the independent pricing service does not provide a quotation are either submitted to independent broker-dealers for prices or priced internally. Typical inputs used by these three pricing methods include reported trades, benchmark yields, credit spreads, liquidity premiums and/or estimated cash flows based on default and prepayment assumptions.

As a result of typical trading volumes and the lack of specific quoted market prices for most debt securities, independent pricing services will normally derive the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable information as outlined above. If
39
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
there are no recently reported trades, the independent pricing services and broker-dealers may use matrix or pricing model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at relevant market rates. Certain securities are priced using broker-dealer quotes, which may utilize proprietary inputs and models. Additionally, the majority of these quotes are non-binding.

Included in the pricing of asset-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment assumptions believed to be relevant for the underlying collateral. Actual prepayment experience may vary from these estimates.

Internally derived estimates may be used to develop a fair value for securities for which the Company is unable to obtain either a reliable price from an independent pricing service or a suitable broker-dealer quote. These fair value estimates may incorporate Level 2 and Level 3 inputs and are generally derived using expected future cash flows, discounted at market interest rates available from market sources based on the credit quality and duration of the instrument. For securities that may not be reliably priced using these internally developed pricing models, a fair value may be estimated using indicative market prices. These prices are indicative of an exit price, but the assumptions used to establish the fair value may not be observable or corroborated by market observable information and, therefore, represent Level 3 inputs.

The Company performs an analysis on the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include initial and ongoing review of third-party pricing service methodologies, review of pricing statistics and trends, back testing recent trades and monitoring of trading volumes. In addition, the Company considers whether prices received from independent broker-dealers represent a reasonable estimate of fair value using internal and external cash flow models, which are developed based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the tables above.third party may be adjusted accordingly.

For those securities that were internally valued at March 31, 2023 and December 31, 2022, the pricing model used by the Company utilizes current spread levels of similarly rated securities to determine the market discount rate for the security. Furthermore, appropriate risk premiums for illiquidity and non-performance are incorporated in the discount rate. Cash flows, as estimated by the Company using issuer-specific default statistics and prepayment assumptions, are discounted to determine an estimated fair value. 

On an ongoing basis, the Company reviews the independent pricing services’ valuation methodologies and related inputs and evaluates the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy distribution based upon trading activity and the observability of market inputs. Based on the results of this evaluation, each price is classified into Level 1, 2, or 3. Most prices provided by independent pricing services, including broker-dealer quotes, are classified into Level 2 due to their use of market observable inputs.

Limited Partnerships

Fair values for limited partnership interests, which are included in other invested assets, is generally determined using the proportion of the Company’s investment in the value of the net assets of each fund (“NAV equivalent”) as a practical expedient for fair value, and generally, are recorded on a three-month lag. No adjustments to these amounts were deemed necessary at March 31, 2023 and December 31, 2022. As a result of using the net asset value per share practical expedient, limited partnership interests are not classified in the fair value hierarchy.

The Company’s limited partnership interests are not redeemable, and distributions received are generally the result of liquidation of the underlying assets of the partnerships. The Company generally has the ability under the partnership agreements to sell its interest to another limited partner with the prior written consent of the general partner. In cases when the Company expects to sell the limited partnership interest, the estimated sales price is used to determine the fair value rather than the practical expedient. These limited partnership interests are classified as Level 2 in the fair value hierarchy.

40
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
In cases when a limited partnership’s financial statements are unavailable and a NAV equivalent is not available or practical, the fair value may be based on an internally developed model or provided by the general partner as determined using private transactions, information obtained from the primary co-investor or underlying company, or financial metrics provided by the lead sponsor. These investments are classified as Level 3 in the fair value hierarchy.

Policy Loans

Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances plusand accrued investment income,interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans which includes accrued investment income, approximates fair value. The reinsurance related component of policy loans at fair value andunder the fair value option have been classified as Level 3 within the fair value hierarchy.

Freestanding Derivative Instruments

Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, which the Company would receive or pay upon sale or termination of the contracts at the reporting date. Changes in fair value are included in net gains (losses) on derivatives and investments. Freestanding derivatives priced using third party pricing services incorporate inputs that are predominantly observable in the market. Inputs used to value derivatives include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels.

Freestanding derivative instruments classified as Level 1 include futures, which are traded on active exchanges. Freestanding derivative instruments classified as Level 2 include interest rate swaps, cross currency swaps, cross-currency forwards, credit default swaps, total return swaps, put-swaptions and certain equity index call and put options. These derivative valuations are determined by third-party pricing services using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Freestanding derivative instruments classified as Level 3 include interest rate contingent options that are valued by third-party pricing services utilizing significant unobservable inputs.

Cash and Cash Equivalents

Cash and cash equivalents primarily include money market instruments and bank deposits. Cash equivalents also includes all highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase. Certain money market instruments are valued using unadjusted quoted prices in active markets and are classified as Level 1.

Funds Withheld Payable Under Reinsurance Treaties

The funds withheld payable under reinsurance treaties forincludes both the funds withheld payable which are held at fair value under the fair value option and the Athenefunds withheld embedded derivative, are excluded from the tables above.derivative. The fair value of Fundsthe funds withheld payable which are held at fair value under reinsurance treaties, excluding the Athenefair value option is equal to the fair value of the assets held as collateral, which primarily consists of policy loans using industry standard valuation techniques. The funds withheld embedded derivative is determined based upon a total return swap technique referencing the fair value of the investments held byunder the Company related to the Company’sreinsurance contract and requires certain significant unobservable inputs. The funds withheld payable under reinsurance treaties. The Athene embedded derivative utilizes a total return swap technique which incorporatesare held at fair value under the fair value of the invested assets supporting the reinsurance agreement as a component of the valuation. As a result, these valuations foroption and the funds withheld payable under reinsurance treaties and the Athene embedded derivative require certain significant inputs which are generally not observable and, accordingly, the valuation is considered Level 3 in the fair value hierarchy.

41
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Separate Account Assets

Separate account assets are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2 assets.

Market Risk Benefits

Variable Annuities

Variable annuity contracts issued by the Company may include various guaranteed minimum death, withdrawal, income and accumulation benefits which are classified as MRBs and measured at fair value. The GMIB reinsurance recoverableCompany discontinued offering guaranteed minimum interest benefits (“GMIB”) in 2009 and guaranteed minimum accumulation benefits (“GMAB”) in 2011.

Our MRB assets and MRB liabilities are reported separately on our Condensed Consolidated Balance Sheets. Increases to an asset or decreases to a liability are described as favorable changes to fair value. Changes in fair value calculationare reported in Market risk benefits (gains) losses, net on the Condensed Consolidated Income Statements. However, the change in fair value related to our own non-performance risk is basedrecognized as a component of other comprehensive income and is reported in Change in non-performance on market risk benefits, net of tax expense (benefit) on the Condensed Consolidated Statements of Comprehensive Income (Loss).

Variable annuity guaranteed benefit features classified as MRBs, which have explicit fees, are measured using the attributed fee method. Under the attributed fee method, fair value is measured as the difference between the present value of projected future liabilities and the present value of projected attributed fees. At the inception of the contract, the Company attributes to the MRB a portion of total fees expected to be assessed against the contract holder's account value to offset the projected claims over the lifetime of the contract. The attributed fee is expressed as a percentage of total projected future fees at inception of the contract. This percentage of total projected fees is considered a fixed term of the MRB feature and is held static over the life of the contract. This percentage may not exceed 100% of the total projected contract fees as of contract inception. As the Company may issue contracts that have projected future liabilities greater than the projected future guaranteed benefit fees at issue, the Company may also attribute mortality and expense charges when performing this calculation. The percentage of guaranteed benefit fees and the percentage of mortality and expense charges may not exceed 100% of the total projected fees as of contract inception. In subsequent valuations, both the present value of future cash flows comprisedprojected liabilities and the present value of future expected reinsurance benefit receipts, less futureprojected attributed premium payments to reinsurers, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerningfees are remeasured based on current market conditions and policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality.assumptions.

Embedded derivative liabilitiesThe Company has ceded the guaranteed minimum income benefit (“GMIB”) features elected on certain annuity contracts to an unrelated party. The GMIBs ceded under this reinsurance treaty are classified as an MRB in Level 3 represent thetheir entirety. The reinsurance contract is measured at fair value of guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”)reported in Reinsurance recoverable on market risk benefits. liabilities. TheseChanges in fair value calculations are recorded in market risk benefits (gains) losses, net. Due to the inability to economically reinsure or hedge new issues of the GMIB, the Company discontinued offering the benefit in 2009.

Fair values for MRBs related to variable annuities, including the contract reinsuring GMIB features, are calculated using internally developed models because active, observable markets do not exist for those guaranteed benefits.

The fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behaviorbehavior. Capital market inputs include expected market rates of return, market volatility, correlations of market index returns to fund returns, and long-term market volatility.discount rates, which includes an adjustment for non-performance risk. The more significant policyholder behavior actuarial assumptions include benefit utilization fund allocation,by policyholders, lapse, mortality, and mortality.withdrawal rates. Best estimate assumptions plus risk margins are used as applicable.

42
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
At each valuation date, the fair value calculation reflects expected returns based on constant maturity treasury rates as of that date to determine the value of expected future cash flows produced in a stochastic process. Volatility assumptions are based on a weighting of available market data for implied market volatility for durations up to 10 years, grading to a historical volatility level by year 15, where such long-term historical volatility levels contain an explicit risk margin. Non-performance risk is incorporated into the calculation through the adjustment of the risk-free rate curve based on spreads indicated by a blend of yields on similarly-rated peer debt and yields on JFI debt (adjusted to operating company levels). Risk margins are also incorporated into the model assumptions, particularly for policyholder behavior. Estimates of future policyholder behavior are subjective and are based primarily on the Company’s experience.

As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for the fair value model.

The use of the models and assumptions described above requires a significant amount of judgment. Management believes this results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to or from a willing buyer or seller, if one existed, for those market participants to assume the risks associated with the guaranteed benefits and the related reinsurance. However, the ultimate settlement amount of the asset or liability, which is currently unknown, could likely be significantly different than this fair value.

Fixed Index Annuities

The longevity riders issued on fixed index annuities are classified as MRBs and measured at fair value. Similar to the variable annuity guaranteed benefit features, these contracts have explicit fees and are measured using the attributed fee method. The Company attributes a percentage of total projected future fees expected to be assessed against the policyholder to offset the projected future claims over the lifetime of the contract. If the fees attributed are insufficient to offset the claims at issue, the shortfall is borrowed from the host contract rather than recognizing a loss at inception.

RILA

RILA guaranteed benefit features are classified as MRBs and measured at fair value. Unlike variable or fixed index annuities, RILA products do not have explicit fees and are measured using an option-based method. The fair value measurement represents the present value of future claims payable by the MRB feature. At inception, the value of the MRB is deducted from the value of the contract resulting in no gain or loss.

See Note 12 of the Notes to Condensed Consolidated Financial Statements for more information regarding MRBs.

Fixed Index Annuities

The fair value of the index-linked crediting derivative feature embedded in fixed index annuities, included in Annuity Reserves in the above tables, is calculated using the closed form Black-Scholes Option Pricing model or Monte Carlo simulations, as appropriate for the type of option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders.

RILA

The fair value of the index-linked crediting derivative feature embedded in RILAs, included in Annuity Reserves in the above table, is calculated using the closed form Black-Scholes Option Pricing model, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders.

Notes Issued by Consolidated VIEs

These notes, at fair value under the fair value option, are based on the fair values of corresponding fixed maturity collateral. The CLO liabilities are also reduced by the fair value of the beneficial interest the Company retains in the CLO and the carrying value of any beneficial interests that represent compensation for services. As the notes are valued based on the reference collateral, they are classified as Level 2.
43
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements

Fair Value Option

The Company elected the fair value option for debt securities related to certain consolidated investments totaling $2,093 million and $2,014 million at March 31, 2023 and December 31, 2022, respectively. These debt securities are reflected on the Company’s Condensed Consolidated Balance Sheets as debt securities, at fair value under the fair value option.

The Company has elected the fair value option for certain funds withheld assets, which are held as collateral for reinsurance, totaling $4,069 million and $4,160 million at March 31, 2023 and December 31, 2022, respectively, as discussed above, and includes mortgage loans as discussed below.

The Company elected the fair value option for certain mortgage loans held under the funds withheld reinsurance agreement with Athene. The fair value option was elected for these mortgage loans, purchased or funded after December 31, 2021, to mitigate inconsistency in earnings that would otherwise result between these mortgage loan assets and the funds withheld liability, including the associated embedded derivative, and are valued using third-party pricing services. Changes in fair value are reflected in net investment income on the Condensed Consolidated Income Statements.

The fair value and aggregate contractual principal for mortgage loans where the fair value option was elected after December 31, 2021, were as follows (in millions):

March 31,December 31,
20232022
Fair value$480 $582 
Aggregate contractual principal491 591 

As of March 31, 2023, no loans for which the fair value option was elected were in non-accrual status, and no loans were more than 90 days past due and still accruing interest.

The Company elected the fair value option for notes issued by consolidated VIEs totaling $2,016 million and $1,732 million at March 31, 2023 and December 31, 2022, respectively.

Income and changes in unrealized gains and losses on other assets for which the Company has elected the fair value option are immaterial to the Company’s Condensed Consolidated Financial Statements.


44
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize the Company’s assets and liabilities that are carried at fair value by hierarchy levels (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023
TotalLevel 1Level 2Level 3
Assets
Debt securities
U.S. government securities$4,893$4,892$1$—
Other government securities1,507—1,507—
Public utilities5,472—5,472—
Corporate securities26,684—26,65826
Residential mortgage-backed428—428—
Commercial mortgage-backed1,594—1,594—
Other asset-backed securities5,552—5,552—
Equity securities2251698111
Mortgage loans480——480
Limited partnerships (1)
550—102448
Policy loans3,427——3,427
Freestanding derivative instruments1,051—1,051—
Cash and cash equivalents1,7791,779——
Reinsurance recoverable on market risk benefits238——238
Market risk benefit assets5,204——5,204
Separate account assets204,366—204,366—
Total$263,450$6,687$246,829$9,934
Liabilities
Embedded derivative liabilities (2)
$1,384$—$1,384$—
Funds withheld payable under reinsurance treaties (3)
803——803
Freestanding derivative instruments1,510—1,510—
Notes issued by consolidated VIEs2,016—2,016—
Market risk benefit liabilities5,560——5,560
Total$11,273$—$4,910$6,363
(1) Excludes $2,780 million of limited partnership investments measured at NAV.
(2) Includes the embedded derivative liabilities of $421 million related to RILA and $963 million liability of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets.
(3) Includes the Athene embedded derivative asset of $2,788 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.

45
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
  December 31, 2022
  TotalLevel 1Level 2Level 3
Assets
 Debt securities
 U.S. government securities$5,185 $5,184 $1 $— 
 Other government securities1,467 — 1,467 — 
 Public utilities5,225 — 5,225 — 
 Corporate securities25,146 — 25,090 56 
 Residential mortgage-backed464 — 464 — 
 Commercial mortgage-backed1,638 — 1,638 — 
 Other asset-backed securities5,637 — 5,637 — 
 Equity securities393 165 106 122 
Mortgage loans582 — — 582 
 
Limited partnerships (1)
440 — — 440 
Policy loans3,419 — — 3,419 
 Freestanding derivative instruments1,270 — 1,270 — 
 Cash and cash equivalents4,298 4,298 — — 
 Reinsurance recoverable on market risk benefits221 — — 221 
Market risk benefit assets4,865 — — 4,865 
 Separate account assets195,906 — 195,906 — 
 Total$256,156 $9,647 $236,804 $9,705 
  
Liabilities
 
Embedded derivative liabilities (2)
$1,135 $— $1,135 $— 
 
Funds withheld payable under reinsurance treaties (3)
424 — — 424 
 Freestanding derivative instruments2,065 — 2,065 — 
Notes issued by consolidated VIEs1,732 — 1,732 — 
Market risk benefit liabilities5,662 — — 5,662 
 Total$11,018 $— $4,932 $6,086 
 
(1) Excludes $2,772 million of limited partnership investments measured at NAV.
 
(2) Includes the embedded derivative liabilities of $205 million related to RILA and $931 million of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets.
(3) Includes the Athene embedded derivative asset of $3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.



46

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
The tables below provide rollforwards for the three months ended March 31, 2022,Assets and 2021 of the financial instruments for which significant unobservable inputsLiabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) are used in the fair value measurement. Gains and losses in the tables below include changes in fair value due partly to observable and unobservable factors. The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments hedging the related risks may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the impact of the derivative instruments reported in Level 3 may vary significantly from the total income effect of the hedged instruments.

Total Realized/Unrealized Gains (Losses) Included in
Purchases,
Fair ValueSales,TransfersFair Value
as ofOtherIssuancesin and/oras of
January 1,NetComprehensiveand(out of)March 31,
March 31, 20222022IncomeIncomeSettlementsLevel 32022
Assets
Debt securities
Corporate securities$9 $— $— $2 $3 $14 
Equity securities112 3 — — — 115 
Mortgage loans— 2 — 188 — 190 
Limited partnerships1 — — — — 1 
GMIB reinsurance recoverable262 (30)— — — 232 
Policy loans3,467 60 — (55)— 3,472 
Liabilities
Embedded derivative liabilities$(2,626)$2,174 $— $— $— $(452)
Funds withheld payable under reinsurance treaties(3,759)1,220 — 60 — (2,479)
Level 3 Assets and Liabilities by Price Source
Total Realized/Unrealized Gains (Losses) Included in
Purchases,
Fair ValueSales,TransfersFair Value
as ofOtherIssuancesin and/oras of
January 1,NetComprehensiveand(out of)March 31,
March 31, 20212021IncomeIncomeSettlementsLevel 32021
Assets
Debt securities
Corporate securities$29 $1 $— $2 $(13)$19 
Equity securities104 (2)— — — 102 
Limited partnerships1 — — — — 1 
GMIB reinsurance recoverable340 (74)— — — 266 
Policy loans3,454 55 — (23)— 3,486 
Liabilities
Embedded derivative liabilities$(5,592)$4,723 $— $— $— $(869)
Funds withheld payable under reinsurance treaties(4,453)914 2 51 — (3,486)

The table below presents the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023
AssetsTotalInternalExternal
Debt securities:
Corporate$26 $— $26 
Equity securities111 1 110 
    Mortgage loans480 — 480 
Limited partnerships448 1 447 
Policy loans3,427 3,427 — 
Reinsurance recoverable on market risk benefits238 238 — 
Market risk benefit assets5,204 5,204 — 
Total$9,934 $8,871 $1,063 
Liabilities
Funds withheld payable under reinsurance treaties (1)
803 803 — 
Market risk benefit liabilities5,560 5,560 — 
Total$6,363 $6,363 $— 
  (1) Includes the Athene embedded derivative asset of $2,788 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
December 31, 2022
AssetsTotalInternalExternal
Debt securities:
Corporate$56 $— $56 
Equity securities122 1 121 
Mortgage loans582 — 582 
Limited partnerships440 8 432 
Policy loans3,419 3,419 — 
Reinsurance recoverable on market risk benefits221 221 — 
Market risk benefit assets4,865 4,865 — 
Total$9,705 $8,514 $1,191 
Liabilities
Funds withheld payable under reinsurance treaties (1)
424 424 — 
Market risk benefit liabilities5,662 5,662 — 
Total$6,086 $6,086 $— 
  (1) Includes the Athene embedded derivative asset of $3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
External pricing sources for securities represent unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available.


47

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
The components of the amounts included in purchases, sales, issuances and settlements for the three months ended March 31, 2022, and 2021 shown above are as follows (in millions):

March 31, 2022PurchasesSalesIssuancesSettlementsTotal
Assets
Debt securities
Corporate securities$2 $— $— $— $2 
Mortgage loans188———188
Policy loans——30(85)(55)
Total$190$—$30$(85)$135
Liabilities
Funds withheld payable under reinsurance treaties$—$—$(31)$91$60
March 31, 2021PurchasesSalesIssuancesSettlementsTotal
Assets
Debt securities
Corporate securities$2 $— $— $— $2 
Policy loans——28(51)(23)
Total$2$—$28$(51)$(21)
Liabilities
Funds withheld payable under reinsurance treaties$—$—$(83)$134$51
For the three months ended March 31, 2022, and 2021, there were no transfers fromQuantitative Information Regarding Internally-Priced Level 3 to NAV. For the three months ended March 31, 2022, transfers from Level 3 to Level 2 of the fair value hierarchy were $4 millionAssets and transfers from Level 2 to Level 3 were $7 million. For the three months ended March 31, 2021, transfers from Level 3 to Level 2 of the fair value hierarchy were $18 million and transfers from Level 2 to Level 3 were $5 million.Liabilities

The portion of gains (losses) included in net income (loss) or other comprehensive income (loss) ("OCI") attributable to the change in unrealized gains and lossestable below presents quantitative information on internally-priced Level 3 financial instruments still held was as followsassets and liabilities that use significant unobservable inputs (in millions)millions, 2022 information recast for the adoption of LDTI):

Three Months Ended March 31,
20222021
Included in
Net Income		Included in OCIIncluded in
Net Income		Included in OCI
Assets
Debt securities
Corporate securities$— $— $1 $— 
Equity securities3 — (2)— 
Mortgage loans2 — — — 
GMIB reinsurance recoverable(30)— (74)— 
Policy loans60 — — — 
Liabilities
Embedded derivative liabilities$2,174 $— $4,723 $— 
Funds withheld payable under reinsurance treaties1,220 — (998)— 
As of March 31, 2023
Fair
Value		Valuation Technique(s)Significant Unobservable Input(s)Assumption or Input RangeImpact of Increase in Input on Fair Value
Assets
Reinsurance recoverable on market risk benefits$238 Discounted cash
flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
2.97% - 8.10%Decrease
Utilization(3)
0.00% - 20.00%Increase
Withdrawal(4)
47.50% - 52.50%Increase
Non-performance risk(5)
1.21% - 2.41%Decrease
Long-term Equity Volatility(6)
18.13% - 22.50%Increase

Market risk benefit assets$5,204 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
1.21% - 2.41%Decrease
Long-term Equity Volatility(6)
18.13% - 22.50%Increase
Liabilities
Market risk benefit liabilities$5,560 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
1.21% - 2.41%Decrease
Long-term Equity Volatility(6)
18.13% - 22.50%Increase

(1)    Mortality rates vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied.
(2)     Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized.
(3)     The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.
(4)     The withdrawal rate represents the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount under the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions.
(5)    Non-performance risk adjustment is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.
(6)    Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available.

48

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
As of December 31, 2022
Fair
Value		Valuation Technique(s)Significant Unobservable Input(s)Assumption or Input RangeImpact of Increase in Input on Fair Value
Assets
Reinsurance recoverable on market risk benefits$221 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
2.97% - 8.10%Decrease
Utilization(3)
0.00% - 20.00%Increase
Withdrawal(4)
47.50% - 52.50%Increase
Non-performance risk(5)
0.64% - 2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 23.68%Increase
Market risk benefit assets$4,865 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
0.64% - 2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 23.68%Increase
Liabilities
Market risk benefit liabilities$5,662 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
0.64% - 2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 23.68%Increase
(1)    Mortality rates vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied.
(2)     Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized.
(3)     The utilization rate represents the expected percentage of Financial Instruments Carried at Other Than Fair Valuecontracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.
(4)     The withdrawal rate represents the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount under the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions.
(5)    Non-performance risk adjustment is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.
(6)    Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available.

Mortgage Loans
49

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Fair values are generally determined by discounting expected future cash flows at current market interest rates, inclusive of a credit spread, for similar quality loans. For loans whose value is dependent upon the underlying property, fair value is determined to be the estimated value of the collateral. Certain characteristics considered significant in determining the spread or collateral value may be based on internally developed estimates. As a result, these investments have been classified as Level 3 within the fair value hierarchy.

Mortgage loans held under the funds withheld reinsurance agreement are valued using third-party pricing services, which may use economic inputs, geographical information, and property specific assumptions in deriving the fair value price. The Company reviews the valuations from these pricing providers to ensure they are reasonable. Due to lack of observable inputs, these investments have been classified as Level 3 within the fair value hierarchy.

Policy Loans

Policy loans are loans the Company issues to contract holders that use the cash surrender value of their life insurance policy or annuity contract as collateral. At both March 31, 2023 and December 31, 2022, $3.4 billion these loans were carried at fair value, which the Company believes is equal to unpaid principal balances, plus accrued investment income. At both March 31, 2023 and December 31, 2022, the Company had $1.0 billion of policy loans not held as collateral for reinsurance, which were carried at the unpaid principal balances.

33
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments
Other Invested Assets

Other invested assets primarily include investments in Federal Home Loan Bank capital stock, limited partnerships (“LPs”), and real estate. Federal Home Loan Bank capital stock is carried at cost and adjusted for any impairment. At both March 31, 2023 and December 31, 2022, FHLB capital stock had carrying value of $146 million, respectively. Real estate is carried at the lower of depreciated cost or fair value. At March 31, 2023 and December 31, 2022, real estate totaling $235 million and $237 million, respectively, included foreclosed properties with a book value of nil at both March 31, 2023 and December 31, 2022, respectively. Carrying values for limited partnership investments are generally determined by using the proportion of the Company’s investment in each fund (Net Asset Value (“NAV”) equivalent) as a practical expedient for fair value, and generally are recorded on a three-month lag, with changes in value included in net investment income. At March 31, 2023 and December 31, 2022, investments in LPs had carrying values of $3,330 million and $3,212 million, respectively.

In June 2021, the Company entered into an arrangement to sell $420 million of limited partnership investments, of which $236 million and $168 million were sold in the second and third quarter of 2021, respectively, and the remainder was sold in January 2022. The LPs sold were carried at estimated sales price.

Securities Lending

The Company has entered into securities lending agreements with agent banks whereby blocks of securities are loaned to third parties, primarily major brokerage firms. As of March 31, 2023 and December 31, 2022, the estimated fair value of loaned securities was $38 million and $35 million, respectively. The agreements require a minimum of 102% of the fair value of the loaned securities to be held as collateral, calculated daily. To further minimize the credit risks related to these programs, the financial condition of counterparties is monitored on a regular basis. At March 31, 2023 and December 31, 2022, cash collateral received in the amount of $39 million and $36 million, respectively, was invested by the agent banks and included in cash and cash equivalents of the Company. A securities lending payable for the overnight and continuous loans is included in liabilities in the amount of cash collateral received. Securities lending transactions are used to generate income. Income and expenses associated with these transactions are reported as net investment income.

Repurchase Agreements

The Company routinely enters into repurchase agreements whereby the Company agrees to sell and repurchase securities. These agreements are accounted for as financing transactions, with the assets and associated liabilities included in the Condensed Consolidated Balance Sheets. Short-term borrowings under such agreements averaged $808 million for three months ended March 31, 2023 and $311 million for the year ended December 31, 2022, with weighted average interest rates of 3.87% and 2.54%, respectively. At March 31, 2023 and December 31, 2022, the outstanding repurchase agreement balance was $1,085 million and $1,012 million, respectively, collateralized with U.S. Treasury notes and corporate securities and maturing within 30 days, and was included within repurchase agreements and securities lending payable in the Condensed Consolidated Balance Sheets. In the event of a decline in the fair value of the pledged collateral under these agreements, the Company may be required to transfer cash or additional securities as pledged collateral. Interest expense totaled $8 million and nil both for the three months ended March 31, 2023 and 2022, respectively. The highest level of short-term borrowings at any month end was $1,085 million and $584 million for the three months ended March 31, 2023 and 2022, respectively.

34
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments

5. Derivative Instruments

The Company’s business model includes the acceptance, monitoring and mitigation of risk. Specifically, the Company considers, among other factors, exposures to interest rate and equity market movements, foreign exchange rates and other asset or liability prices. The Company uses derivative instruments to mitigate or reduce these risks in accordance with established policies and goals. The Company’s derivative holdings, while effective in managing defined risks, are not structured to meet accounting requirements to be designated as hedging instruments. As a result, freestanding derivatives are carried at fair value with changes recorded in net gains (losses) on derivatives and investments.

A summary of the aggregate contractual or notional amounts and fair values of the Company’s freestanding and embedded derivative instruments are as follows (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023
Contractual/AssetsLiabilitiesNet
NotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Freestanding derivatives
Cross-currency swaps$1,854 $75 $123 $(48)
Equity index call options17,500 247 — 247 
Equity index futures (2)
16,328 — — — 
Equity index put options43,500 643 — 643 
Interest rate swaps7,728 7 148 (141)
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptions22,000 — 1,157 (1,157)
Interest rate futures (2)
81,365 — — — 
Total return swaps1,318 — 61 (61)
Total freestanding derivatives193,093 972 1,489 (517)
Embedded derivatives
Fixed index annuity embedded derivatives (3)
N/A— 963 (963)
Registered index linked annuity embedded derivatives (3)
N/A— 421 (421)
Total embedded derivativesN/A— 1,384 (1,384)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps158 23 1 22 
Cross-currency forwards1,417 56 20 36 
Funds withheld embedded derivative (4)
N/A2,788 — 2,788 
Total derivatives related to funds withheld under reinsurance treaties1,575 2,867 21 2,846 
Total$194,668 $3,839 $2,894 $945 

(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The non-performance risk adjustment is included in the balance above.
(4) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

35
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
December 31, 2022
Contractual/AssetsLiabilitiesNet
NotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Freestanding derivatives
Cross-currency swaps$1,825 $73 $104 $(31)
Equity index call options17,500 106 — 106 
Equity index futures (2)
19,760 — — — 
Equity index put options30,500 958 — 958 
Interest rate swaps7,728 5 231 (226)
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptions25,000 — 1,711 (1,711)
Interest rate futures (2)
105,261 — — — 
Total return swaps739 31 — 31 
Total freestanding derivatives209,813 1,173 2,046 (873)
Embedded derivatives
Fixed index annuity embedded derivatives (3)
N/A— 931 (931)
Registered index linked annuity embedded derivatives (3)
N/A— 205 (205)
Total embedded derivativesN/A— 1,136 (1,136)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps158 23 1 22 
Cross-currency forwards1,490 74 18 56 
Funds withheld embedded derivative (4)
N/A3,158 — 3,158 
Total derivatives related to funds withheld under reinsurance treaties1,648 3,255 19 3,236 
Total$211,461 $4,428 $3,201 $1,227 
(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The non-performance risk adjustment is included in the balance above.
(4) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

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Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
The following table reflects the results of the Company’s derivatives, including gains (losses) and change in fair value of freestanding derivative instruments and embedded derivatives (in millions, 2022 information recast for the adoption of LDTI):

Three Months Ended March 31,
20232022
Derivatives excluding funds withheld under reinsurance treaties
Cross-currency swaps$(26)$(32)
Equity index call options(164)(589)
Equity index futures(1,885)623 
Equity index put options(762)(315)
Interest rate swaps66 (261)
Interest rate swaps - cleared16 (88)
Put-swaptions573 (468)
Interest rate futures(306)(310)
Total return swaps(61)— 
Fixed index annuity embedded derivatives(2)1 
Registered index linked annuity embedded derivatives(107)3 
Total net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treaties(2,658)(1,436)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps1 3 
Cross-currency forwards(10)18 
Funds withheld embedded derivative(370)1,281 
Total net gains (losses) on derivative instruments related to funds withheld under reinsurance treaties(379)1,302 
Total net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treaties$(3,037)$(134)

All the Company’s trade agreements for freestanding, over-the-counter derivatives, contain credit downgrade provisions that allow a party to assign or terminate derivative transactions if the counterparty’s credit rating declines below an established limit. At March 31, 2023 and December 31, 2022, the fair value of the Company’s net non-cleared, over-the-counter derivative assets by counterparty were $749 million and $885 million, respectively, and held collateral was $695 million and $858 million, respectively, related to these agreements. At March 31, 2023 and December 31, 2022, the fair value of the Company’s net non-cleared, over-the-counter derivative liabilities by counterparty were $1,208 million and $1,680, respectively, and provided collateral was $1,357 million and $1,650, respectively, related to these agreements. If all the downgrade provisions had been triggered at March 31, 2023 and December 31, 2022, in aggregate, the Company would have had to disburse nil and $30 million, respectively, and would have been allowed to claim $203 million and $27 million, respectively.

Offsetting Assets and Liabilities

The Company’s derivative instruments, repurchase agreements and securities lending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company recognizes amounts subject to master netting arrangements on a gross basis within the Condensed Consolidated Balance Sheets.

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Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments
The following tables present the gross and net information about the Company’s financial instruments subject to master netting arrangements (in millions):

March 31, 2023
Gross
Amounts
Recognized		Gross
Amounts
Offset in the Condensed
Consolidated
Balance Sheets		Net Amounts
Presented in
the Condensed Consolidated
Balance Sheets
Gross Amounts Not Offset
in the Condensed Consolidated Balance Sheets
Financial
Instruments (1)
Cash
Collateral
Securities
Collateral (2)
Net
Amount
Financial Assets:
Freestanding derivative
assets$1,051 $— $1,051 $301 $532 $132 $86 
Financial Liabilities:
Freestanding derivative
liabilities$1,510 $— $1,510 $301 $2 $1,207 $— 
Securities loaned39 — 39 — 39 — — 
Repurchase agreements1,085 — 1,085 — — 1,085 — 
Total financial liabilities$2,634 $— $2,634 $301 $41 $2,292 $— 
(1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets.
(2) Excludes initial margin amounts for exchange-traded derivatives.
December 31, 2022
Gross
Amounts
Recognized		Gross
Amounts
Offset in the
Condensed Consolidated
Balance Sheets		Net Amounts
Presented in
the Condensed Consolidated
Balance Sheets
Gross Amounts Not Offset
in the Condensed Consolidated Balance Sheets
Financial
Instruments (1)
Cash
Collateral
Securities
Collateral (2)
Net
Amount
Financial Assets:
Freestanding derivative
assets$1,270 $— $1,270 $385 $683 $157 $45 
Financial Liabilities:
Freestanding derivative
liabilities$2,065 $— $2,065 $385 $— $1,638 $42 
Securities loaned36 — 36 — 36 — — 
Repurchase agreements1,012 — 1,012 — — 1,012 — 
Total financial liabilities$3,113 $— $3,113 $385 $36 $2,650 $42 
(1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets.
(2) Excludes initial margin amounts for exchange-traded derivatives.

In the above tables, the amounts of assets or liabilities presented in the Company’s Condensed Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables. The above tables exclude net embedded derivative liabilities of $1,384 million and $1,136 million as of March 31, 2023 and December 31, 2022, respectively, as these derivatives are not subject to master netting arrangements. The above tables also exclude the funds withheld embedded derivative asset (liability) of $2,788 million and $3,158 million at March 31, 2023 and December 31, 2022.

38
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
6. Fair Value Measurements

The following table summarizes the fair value and carrying value of the Company’s financial instruments (in millions, 2022 information recast for the adoption of LDTI):
  March 31, 2023 December 31, 2022
  Carrying
Value		Fair
Value		 Carrying
Value		Fair
Value
Assets     
 
Debt securities (1)
$46,130 $46,130 $44,762 $44,762 
 Equity securities225 225 393 393 
 
Mortgage loans (1)
11,391 10,826 11,549 10,841 
Limited partnerships3,330 3,330 3,212 3,212 
 
Policy loans (1)
4,377 4,377 4,377 4,377 
 Freestanding derivative instruments1,051 1,051 1,270 1,270 
 Federal Home Loan Bank of Indianapolis ("FHLBI") capital stock146 146 146 146 
 Cash and cash equivalents1,779 1,779 4,298 4,298 
 Reinsurance recoverable on market risk benefits238 238 221 221 
Market risk benefit assets5,204 5,204 4,865 4,865 
 Separate account assets204,366 204,366 195,906 195,906 
  
Liabilities
 
Annuity reserves (2)
36,640 32,399 37,357 32,377 
Market risk benefit liabilities5,560 5,560 5,662 5,662 
 
Reserves for guaranteed investment contracts (3)
989 958 1,128 1,099 
 
Trust instruments supported by funding agreements (3)
5,597 5,404 5,887 5,760 
 
FHLB funding agreements (3)
2,105 2,007 2,004 2,104 
 
Funds withheld payable under reinsurance treaties (1)
22,254 22,254 22,957 22,957 
 Long-term debt2,632 2,403 2,635 2,344 
 Securities lending payable39 39 36 36 
 Freestanding derivative instruments1,510 1,510 2,065 2,065 
Notes issued by consolidated VIEs2,016 2,016 1,732 1,732 
 Repurchase agreements1,085 1,085 1,012 1,012 
 Separate account liabilities204,366 204,366 195,906 195,906 
(1) Includes items carried at fair value under the fair value option and trading securities.
(2) Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments.
(3) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets.
The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on a recurring basis reported in the following tables.

Debt and Equity Securities

The fair values for debt and equity securities are determined using information available from independent pricing services, broker-dealer quotes, or internally derived estimates. Priority is given to publicly available prices from independent sources, when available. Securities for which the independent pricing service does not provide a quotation are either submitted to independent broker-dealers for prices or priced internally. Typical inputs used by these three pricing methods include reported trades, benchmark yields, credit spreads, liquidity premiums and/or estimated cash flows based on default and prepayment assumptions.

As a result of typical trading volumes and the lack of specific quoted market prices for most debt securities, independent pricing services will normally derive the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable information as outlined above. If
39
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
there are no recently reported trades, the independent pricing services and broker-dealers may use matrix or pricing model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at relevant market rates. Certain securities are priced using broker-dealer quotes, which may utilize proprietary inputs and models. Additionally, the majority of these quotes are non-binding.

Included in the pricing of asset-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment assumptions believed to be relevant for the underlying collateral. Actual prepayment experience may vary from these estimates.

Internally derived estimates may be used to develop a fair value for securities for which the Company is unable to obtain either a reliable price from an independent pricing service or a suitable broker-dealer quote. These fair value estimates may incorporate Level 2 and Level 3 inputs and are generally derived using expected future cash flows, discounted at market interest rates available from market sources based on the credit quality and duration of the instrument. For securities that may not be reliably priced using these internally developed pricing models, a fair value may be estimated using indicative market prices. These prices are indicative of an exit price, but the assumptions used to establish the fair value may not be observable or corroborated by market observable information and, therefore, represent Level 3 inputs.

The Company performs an analysis on the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include initial and ongoing review of third-party pricing service methodologies, review of pricing statistics and trends, back testing recent trades and monitoring of trading volumes. In addition, the Company considers whether prices received from independent broker-dealers represent a reasonable estimate of fair value using internal and external cash flow models, which are developed based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party may be adjusted accordingly.

For those securities that were internally valued at March 31, 2023 and December 31, 2022, the pricing model used by the Company utilizes current spread levels of similarly rated securities to determine the market discount rate for the security. Furthermore, appropriate risk premiums for illiquidity and non-performance are incorporated in the discount rate. Cash flows, as estimated by the Company using issuer-specific default statistics and prepayment assumptions, are discounted to determine an estimated fair value. 

On an ongoing basis, the Company reviews the independent pricing services’ valuation methodologies and related inputs and evaluates the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy distribution based upon trading activity and the observability of market inputs. Based on the results of this evaluation, each price is classified into Level 1, 2, or 3. Most prices provided by independent pricing services, including broker-dealer quotes, are classified into Level 2 due to their use of market observable inputs.

Limited Partnerships

Fair values for limited partnership interests, which are included in other invested assets, is generally determined using the proportion of the Company’s investment in the value of the net assets of each fund (“NAV equivalent”) as a practical expedient for fair value, and generally, are recorded on a three-month lag. No adjustments to these amounts were deemed necessary at March 31, 2023 and December 31, 2022. As a result of using the net asset value per share practical expedient, limited partnership interests are not classified in the fair value hierarchy.

The Company’s limited partnership interests are not redeemable, and distributions received are generally the result of liquidation of the underlying assets of the partnerships. The Company generally has the ability under the partnership agreements to sell its interest to another limited partner with the prior written consent of the general partner. In cases when the Company expects to sell the limited partnership interest, the estimated sales price is used to determine the fair value rather than the practical expedient. These limited partnership interests are classified as Level 2 in the fair value hierarchy.

40
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
In cases when a limited partnership’s financial statements are unavailable and a NAV equivalent is not available or practical, the fair value may be based on an internally developed model or provided by the general partner as determined using private transactions, information obtained from the primary co-investor or underlying company, or financial metrics provided by the lead sponsor. These investments are classified as Level 3 in the fair value hierarchy.

Policy Loans

Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The reinsurance related component of policy loans at fair value under the fair value option have been classified as Level 3 within the fair value hierarchy.

Freestanding Derivative Instruments

Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, which the Company would receive or pay upon sale or termination of the contracts at the reporting date. Changes in fair value are included in net gains (losses) on derivatives and investments. Freestanding derivatives priced using third party pricing services incorporate inputs that are predominantly observable in the market. Inputs used to value derivatives include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels.

Freestanding derivative instruments classified as Level 1 include futures, which are traded on active exchanges. Freestanding derivative instruments classified as Level 2 include interest rate swaps, cross currency swaps, cross-currency forwards, credit default swaps, total return swaps, put-swaptions and certain equity index call and put options. These derivative valuations are determined by third-party pricing services using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Freestanding derivative instruments classified as Level 3 include interest rate contingent options that are valued by third-party pricing services utilizing significant unobservable inputs.

Cash and Cash Equivalents

Cash and cash equivalents primarily include money market instruments and bank deposits. Cash equivalents also includes all highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase. Certain money market instruments are valued using unadjusted quoted prices in active markets and are classified as Level 1.

Funds Withheld Payable Under Reinsurance Treaties

The funds withheld payable under reinsurance treaties includes both the funds withheld payable which are held at fair value under the fair value option and the funds withheld embedded derivative. The fair value of the funds withheld payable which are held at fair value under the fair value option is equal to the fair value of the assets held as collateral, which primarily consists of policy loans using industry standard valuation techniques. The funds withheld embedded derivative is determined based upon a total return swap technique referencing the fair value of the investments held under the reinsurance contract and requires certain significant unobservable inputs. The funds withheld payable which are held at fair value under the fair value option and the funds withheld embedded derivative are considered Level 3 in the fair value hierarchy.

41
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Separate Account Assets

Separate account assets are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2 assets.

Market Risk Benefits

Variable Annuities

Variable annuity contracts issued by the Company may include various guaranteed minimum death, withdrawal, income and accumulation benefits which are classified as MRBs and measured at fair value. The Company discontinued offering guaranteed minimum interest benefits (“GMIB”) in 2009 and guaranteed minimum accumulation benefits (“GMAB”) in 2011.

Our MRB assets and MRB liabilities are reported separately on our Condensed Consolidated Balance Sheets. Increases to an asset or decreases to a liability are described as favorable changes to fair value. Changes in fair value are reported in Market risk benefits (gains) losses, net on the Condensed Consolidated Income Statements. However, the change in fair value related to our own non-performance risk is recognized as a component of other comprehensive income and is reported in Change in non-performance on market risk benefits, net of tax expense (benefit) on the Condensed Consolidated Statements of Comprehensive Income (Loss).

Variable annuity guaranteed benefit features classified as MRBs, which have explicit fees, are measured using the attributed fee method. Under the attributed fee method, fair value is measured as the difference between the present value of projected future liabilities and the present value of projected attributed fees. At the inception of the contract, the Company attributes to the MRB a portion of total fees expected to be assessed against the contract holder's account value to offset the projected claims over the lifetime of the contract. The attributed fee is expressed as a percentage of total projected future fees at inception of the contract. This percentage of total projected fees is considered a fixed term of the MRB feature and is held static over the life of the contract. This percentage may not exceed 100% of the total projected contract fees as of contract inception. As the Company may issue contracts that have projected future liabilities greater than the projected future guaranteed benefit fees at issue, the Company may also attribute mortality and expense charges when performing this calculation. The percentage of guaranteed benefit fees and the percentage of mortality and expense charges may not exceed 100% of the total projected fees as of contract inception. In subsequent valuations, both the present value of future projected liabilities and the present value of projected attributed fees are remeasured based on current market conditions and policyholder behavior assumptions.

The Company has ceded the guaranteed minimum income benefit (“GMIB”) features elected on certain annuity contracts to an unrelated party. The GMIBs ceded under this reinsurance treaty are classified as an MRB in their entirety. The reinsurance contract is measured at fair value and reported in Reinsurance recoverable on market risk benefits.Changes in fair value are recorded in market risk benefits (gains) losses, net. Due to the inability to economically reinsure or hedge new issues of the GMIB, the Company discontinued offering the benefit in 2009.

Fair values for MRBs related to variable annuities, including the contract reinsuring GMIB features, are calculated using internally developed models because active, observable markets do not exist for those guaranteed benefits.

The fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behavior. Capital market inputs include expected market rates of return, market volatility, correlations of market index returns to fund returns, and discount rates, which includes an adjustment for non-performance risk. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable.

42
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
At each valuation date, the fair value calculation reflects expected returns based on constant maturity treasury rates as of that date to determine the value of expected future cash flows produced in a stochastic process. Volatility assumptions are based on a weighting of available market data for implied market volatility for durations up to 10 years, grading to a historical volatility level by year 15, where such long-term historical volatility levels contain an explicit risk margin. Non-performance risk is incorporated into the calculation through the adjustment of the risk-free rate curve based on spreads indicated by a blend of yields on similarly-rated peer debt and yields on JFI debt (adjusted to operating company levels). Risk margins are also incorporated into the model assumptions, particularly for policyholder behavior. Estimates of future policyholder behavior are subjective and are based primarily on the Company’s experience.

As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for the fair value model.

The use of the models and assumptions described above requires a significant amount of judgment. Management believes this results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to or from a willing buyer or seller, if one existed, for those market participants to assume the risks associated with the guaranteed benefits and the related reinsurance. However, the ultimate settlement amount of the asset or liability, which is currently unknown, could likely be significantly different than this fair value.

Fixed Index Annuities

The longevity riders issued on fixed index annuities are classified as MRBs and measured at fair value. Similar to the variable annuity guaranteed benefit features, these contracts have explicit fees and are measured using the attributed fee method. The Company attributes a percentage of total projected future fees expected to be assessed against the policyholder to offset the projected future claims over the lifetime of the contract. If the fees attributed are insufficient to offset the claims at issue, the shortfall is borrowed from the host contract rather than recognizing a loss at inception.

RILA

RILA guaranteed benefit features are classified as MRBs and measured at fair value. Unlike variable or fixed index annuities, RILA products do not have explicit fees and are measured using an option-based method. The fair value measurement represents the present value of future claims payable by the MRB feature. At inception, the value of the MRB is deducted from the value of the contract resulting in no gain or loss.

See Note 12 of the Notes to Condensed Consolidated Financial Statements for more information regarding MRBs.

Fixed Index Annuities

The fair value of the index-linked crediting derivative feature embedded in fixed index annuities, included in Annuity Reserves in the above tables, is calculated using the closed form Black-Scholes Option Pricing model or Monte Carlo simulations, as appropriate for the type of option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders.

RILA

The fair value of the index-linked crediting derivative feature embedded in RILAs, included in Annuity Reserves in the above table, is calculated using the closed form Black-Scholes Option Pricing model, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders.

Notes Issued by Consolidated VIEs

These notes, at fair value under the fair value option, are based on the fair values of corresponding fixed maturity collateral. The CLO liabilities are also reduced by the fair value of the beneficial interest the Company retains in the CLO and the carrying value of any beneficial interests that represent compensation for services. As the notes are valued based on the reference collateral, they are classified as Level 2.
43
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements

Fair Value Option

The Company elected the fair value option for debt securities related to certain consolidated investments totaling $2,093 million and $2,014 million at March 31, 2023 and December 31, 2022, respectively. These debt securities are reflected on the Company’s Condensed Consolidated Balance Sheets as debt securities, at fair value under the fair value option.

The Company has elected the fair value option for certain funds withheld assets, which are held as collateral for reinsurance, totaling $4,069 million and $4,160 million at March 31, 2023 and December 31, 2022, respectively, as discussed above, and includes mortgage loans as discussed below.

The Company elected the fair value option for certain mortgage loans held under the funds withheld reinsurance agreement with Athene. The fair value option was elected for these mortgage loans, purchased or funded after December 31, 2021, to mitigate inconsistency in earnings that would otherwise result between these mortgage loan assets and the funds withheld liability, including the associated embedded derivative, and are valued using third-party pricing services. Changes in fair value are reflected in net investment income on the Condensed Consolidated Income Statements.

The fair value and aggregate contractual principal for mortgage loans where the fair value option was elected after December 31, 2021, were as follows (in millions):

March 31,December 31,
20232022
Fair value$480 $582 
Aggregate contractual principal491 591 

As of March 31, 2023, no loans for which the fair value option was elected were in non-accrual status, and no loans were more than 90 days past due and still accruing interest.

The Company elected the fair value option for notes issued by consolidated VIEs totaling $2,016 million and $1,732 million at March 31, 2023 and December 31, 2022, respectively.

Income and changes in unrealized gains and losses on other assets for which the Company has elected the fair value option are immaterial to the Company’s Condensed Consolidated Financial Statements.


44
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize the Company’s assets and liabilities that are carried at fair value by hierarchy levels (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023
TotalLevel 1Level 2Level 3
Assets
Debt securities
U.S. government securities$4,893$4,892$1$—
Other government securities1,507—1,507—
Public utilities5,472—5,472—
Corporate securities26,684—26,65826
Residential mortgage-backed428—428—
Commercial mortgage-backed1,594—1,594—
Other asset-backed securities5,552—5,552—
Equity securities2251698111
Mortgage loans480——480
Limited partnerships (1)
550—102448
Policy loans3,427——3,427
Freestanding derivative instruments1,051—1,051—
Cash and cash equivalents1,7791,779——
Reinsurance recoverable on market risk benefits238——238
Market risk benefit assets5,204——5,204
Separate account assets204,366—204,366—
Total$263,450$6,687$246,829$9,934
Liabilities
Embedded derivative liabilities (2)
$1,384$—$1,384$—
Funds withheld payable under reinsurance treaties (3)
803——803
Freestanding derivative instruments1,510—1,510—
Notes issued by consolidated VIEs2,016—2,016—
Market risk benefit liabilities5,560——5,560
Total$11,273$—$4,910$6,363
(1) Excludes $2,780 million of limited partnership investments measured at NAV.
(2) Includes the embedded derivative liabilities of $421 million related to RILA and $963 million liability of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets.
(3) Includes the Athene embedded derivative asset of $2,788 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.

45
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
  December 31, 2022
  TotalLevel 1Level 2Level 3
Assets
 Debt securities
 U.S. government securities$5,185 $5,184 $1 $— 
 Other government securities1,467 — 1,467 — 
 Public utilities5,225 — 5,225 — 
 Corporate securities25,146 — 25,090 56 
 Residential mortgage-backed464 — 464 — 
 Commercial mortgage-backed1,638 — 1,638 — 
 Other asset-backed securities5,637 — 5,637 — 
 Equity securities393 165 106 122 
Mortgage loans582 — — 582 
 
Limited partnerships (1)
440 — — 440 
Policy loans3,419 — — 3,419 
 Freestanding derivative instruments1,270 — 1,270 — 
 Cash and cash equivalents4,298 4,298 — — 
 Reinsurance recoverable on market risk benefits221 — — 221 
Market risk benefit assets4,865 — — 4,865 
 Separate account assets195,906 — 195,906 — 
 Total$256,156 $9,647 $236,804 $9,705 
  
Liabilities
 
Embedded derivative liabilities (2)
$1,135 $— $1,135 $— 
 
Funds withheld payable under reinsurance treaties (3)
424 — — 424 
 Freestanding derivative instruments2,065 — 2,065 — 
Notes issued by consolidated VIEs1,732 — 1,732 — 
Market risk benefit liabilities5,662 — — 5,662 
 Total$11,018 $— $4,932 $6,086 
 
(1) Excludes $2,772 million of limited partnership investments measured at NAV.
 
(2) Includes the embedded derivative liabilities of $205 million related to RILA and $931 million of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets.
(3) Includes the Athene embedded derivative asset of $3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.



46
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

Level 3 Assets and Liabilities by Price Source

The table below presents the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023
AssetsTotalInternalExternal
Debt securities:
Corporate$26 $— $26 
Equity securities111 1 110 
    Mortgage loans480 — 480 
Limited partnerships448 1 447 
Policy loans3,427 3,427 — 
Reinsurance recoverable on market risk benefits238 238 — 
Market risk benefit assets5,204 5,204 — 
Total$9,934 $8,871 $1,063 
Liabilities
Funds withheld payable under reinsurance treaties (1)
803 803 — 
Market risk benefit liabilities5,560 5,560 — 
Total$6,363 $6,363 $— 
  (1) Includes the Athene embedded derivative asset of $2,788 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
December 31, 2022
AssetsTotalInternalExternal
Debt securities:
Corporate$56 $— $56 
Equity securities122 1 121 
Mortgage loans582 — 582 
Limited partnerships440 8 432 
Policy loans3,419 3,419 — 
Reinsurance recoverable on market risk benefits221 221 — 
Market risk benefit assets4,865 4,865 — 
Total$9,705 $8,514 $1,191 
Liabilities
Funds withheld payable under reinsurance treaties (1)
424 424 — 
Market risk benefit liabilities5,662 5,662 — 
Total$6,086 $6,086 $— 
  (1) Includes the Athene embedded derivative asset of $3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option.
External pricing sources for securities represent unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available.


47
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Quantitative Information Regarding Internally-Priced Level 3 Assets and Liabilities

The table below presents quantitative information on internally-priced Level 3 assets and liabilities that use significant unobservable inputs (in millions, 2022 information recast for the adoption of LDTI):

As of March 31, 2023
Fair
Value		Valuation Technique(s)Significant Unobservable Input(s)Assumption or Input RangeImpact of Increase in Input on Fair Value
Assets
Reinsurance recoverable on market risk benefits$238 Discounted cash
flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
2.97% - 8.10%Decrease
Utilization(3)
0.00% - 20.00%Increase
Withdrawal(4)
47.50% - 52.50%Increase
Non-performance risk(5)
1.21% - 2.41%Decrease
Long-term Equity Volatility(6)
18.13% - 22.50%Increase

Market risk benefit assets$5,204 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
1.21% - 2.41%Decrease
Long-term Equity Volatility(6)
18.13% - 22.50%Increase
Liabilities
Market risk benefit liabilities$5,560 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
1.21% - 2.41%Decrease
Long-term Equity Volatility(6)
18.13% - 22.50%Increase

(1)    Mortality rates vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied.
(2)     Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized.
(3)     The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.
(4)     The withdrawal rate represents the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount under the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions.
(5)    Non-performance risk adjustment is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.
(6)    Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available.

48
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
As of December 31, 2022
Fair
Value		Valuation Technique(s)Significant Unobservable Input(s)Assumption or Input RangeImpact of Increase in Input on Fair Value
Assets
Reinsurance recoverable on market risk benefits$221 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
2.97% - 8.10%Decrease
Utilization(3)
0.00% - 20.00%Increase
Withdrawal(4)
47.50% - 52.50%Increase
Non-performance risk(5)
0.64% - 2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 23.68%Increase
Market risk benefit assets$4,865 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
0.64% - 2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 23.68%Increase
Liabilities
Market risk benefit liabilities$5,662 Discounted cash flow
Mortality(1)
0.01% - 23.33%Decrease
Lapse(2)
0.05% - 41.28%Decrease
Utilization(3)
0.00% - 100.00%Increase
Withdrawal(4)
11.25% - 100.00%Increase
Non-performance risk(5)
0.64% - 2.27%Decrease
Long-term Equity Volatility(6)
18.50% - 23.68%Increase
(1)    Mortality rates vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied.
(2)     Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized.
(3)     The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.
(4)     The withdrawal rate represents the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount under the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions.
(5)    Non-performance risk adjustment is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.
(6)    Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available.

49
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Sensitivity to Changes in Unobservable Inputs

The following is a general description of sensitivities of significant unobservable inputs and their impact on the fair value measurement for the assets and liabilities reflected in the tables above.

At March 31, 2023 and December 31, 2022, securities of $2 million and $9 million are fair valued using techniques incorporating unobservable inputs and are classified in Level 3 of the fair value hierarchy, respectively. For these assets, their unobservable inputs and ranges of possible inputs do not materially affect their fair valuations and have been excluded from the quantitative information in the tables above.

Policy loans that support funds withheld reinsurance agreements that are held at fair value under the fair value option on the Company’s Condensed Consolidated Balance Sheets are excluded from the tables above. These policy loans do not have a stated maturity and the balances, plus accrued investment income, are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans, which includes accrued investment income, approximates fair value and are classified as Level 3 within the fair value hierarchy.

The fair value of funds withheld payable under the Reassure America Life Insurance Company ("REALIC") reinsurance treaties, is determined based upon the fair value of the funds withheld investments held by the Company and is excluded from the tables above. The funds withheld payable under the Athene reinsurance treaty includes the Athene embedded derivative which is measured at fair value. The valuation of the embedded derivative utilizes a total return swap technique which incorporates the fair value of the invested assets supporting the reinsurance agreement as a component of the valuation. As a result, these valuations for the funds withheld payable under the REALIC reinsurance treaties and the Athene embedded derivative require certain significant inputs which are generally not observable and, accordingly, the valuation is considered Level 3 in the fair value hierarchy.

The GMIB reinsurance recoverable fair value calculation is based on the present value of future cash flows comprised of future expected reinsurance benefit receipts, less future attributed premium payments to reinsurers, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerning policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality.

The MRB asset and liability fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed fees (if applicable), over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behavior. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable.


50
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
The tables below, 2022 information recast for the adoption of LDTI, provide roll-forwards for the three months ended March 31, 2023 and 2022 of the financial instruments for which significant unobservable inputs (Level 3) are used in the fair value measurement. Gains and losses in the tables below include changes in fair value due partly to observable and unobservable factors. The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments hedging the related risks may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the impact of the derivative instruments reported in Level 3 may vary significantly from the total income effect of the hedged instruments.

Total Realized/Unrealized Gains (Losses) Included in
Purchases,
Fair ValueSales,TransfersFair Value
as ofOtherIssuancesin and/oras of
January 1,NetComprehensiveand(out of)March 31,
Three Months Ended March 31, 20232023IncomeIncomeSettlementsLevel 32023
Assets
Debt securities
Corporate securities$56 $— $(1)$(3)$(26)$26 
Equity securities122 (10)— (1)— 111 
Mortgage loans582 (2)— (100)— 480 
Limited partnerships440 4 — 11 (7)448 
Reinsurance recoverable on market risk benefits221 17 — — — 238 
Market risk benefit assets4,865 339 — — — 5,204 
Policy loans3,419 29 — (21)— 3,427 
Liabilities
Funds withheld payable under reinsurance treaties(424)(399)— 20 — (803)
Market risk benefit liabilities(5,662)(182)284 — — (5,560)
Total Realized/Unrealized Gains (Losses) Included in
Purchases,
Fair ValueSales,TransfersFair Value
as ofOtherIssuancesin and/oras of
January 1,NetComprehensiveand(out of)March 31,
Three Months Ended March 31, 20222022IncomeIncomeSettlementsLevel 32022
Assets
Debt securities
Corporate securities$9 $— $— $2 $3 $14 
Equity securities112 3 — — — 115 
Mortgage loans— 2 — 188 — 190 
Limited partnerships396 — — — — 396 
Reinsurance recoverable on market risk benefits383 (57)— — — 326 
Market risk benefit assets1,664 769 — — — 2,433 
Policy loans3,467 60 — (55)— 3,472 
Liabilities
Funds withheld payable under reinsurance treaties(3,759)1,220 — 60 — (2,479)
Market risk benefit liabilities(8,033)1,195 936 — — (5,902)
51
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
The components of the amounts included in purchases, sales, issuances and settlements for the three months ended March 31, 2023 and 2022 shown above are as follows (in millions):

Three Months Ended March 31, 2023PurchasesSalesIssuancesSettlementsTotal
Assets
Debt securities
Corporate securities$1 $(4)$— $— $(3)
Equity securities—(1)——(1)
Mortgage loans36(136)——(100)
Limited partnerships18(7)——11
Policy loans——35(56)(21)
Total$55$(148)$35$(56)$(114)
Liabilities
Funds withheld payable under reinsurance treaties$—$—$(35)$55$20
Three Months Ended March 31, 2022PurchasesSalesIssuancesSettlementsTotal
Assets
Debt securities
Corporate securities$2 $— $— $— $2 
Mortgage loans188———188
Policy loans——30(85)(55)
Total$190$—$30$(85)$135
Liabilities
Funds withheld payable under reinsurance treaties$—$—$(31)$91$60
For the three months ended March 31, 2023, transfers from Level 3 to Level 2 of the fair value hierarchy were $37 million, transfers from Level 2 to Level 3 were $11 million, and transfers from Level 3 to NAV were $7 million.

For the three months ended March 31, 2022, transfers from Level 3 to Level 2 of the fair value hierarchy were $4 million, transfers from Level 2 to Level 3 were $7 million, and there were no transfers from Level 3 fair value hierarchy to NAV.

The portion of gains (losses) included in net income (loss) or other comprehensive income (loss) ("OCI") attributable to the change in unrealized gains and losses on Level 3 financial instruments still held was as follows (in millions, 2022 information recast for the adoption of LDTI):

Three Months Ended March 31,
20232022
Included in
Net Income		Included in OCIIncluded in
Net Income		Included in OCI
Assets
Debt securities
Corporate securities$— $(1)$— $— 
Equity securities(10)— 3 — 
Mortgage loans(2)— 2 — 
Limited partnerships10 — — — 
Reinsurance recoverable on market risk benefits17 — (57)— 
Market risk benefit assets339 — 769 — 
Policy loans29 — 60 — 
Liabilities
Funds withheld payable under reinsurance treaties(399)— 1,220 — 
Market risk benefit liabilities(182)284 1,195 936 

52
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
Fair Value of Financial Instruments Carried at Other Than Fair Value

The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on a nonrecurring basis reported in the following table.

Mortgage Loans

Fair values are generally determined by discounting expected future cash flows at current market interest rates, inclusive of a credit spread, for similar quality loans. For loans whose value is dependent on the underlying property, fair value is the estimated value of the collateral. Certain characteristics considered significant in determining the spread or collateral value may be based on internally developed estimates. As a result, these investments have been classified as Level 3 within the fair value hierarchy.

Mortgage loans held under the funds withheld reinsurance agreement are valued using third-party pricing services, which may use economic inputs, geographical information, and property specific assumptions in deriving the fair value price. The Company reviews the valuations from these pricing providers to ensure they are reasonable. Due to lack of observable inputs, these investments have been classified as Level 3 within the fair value hierarchy.

Policy Loans

Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The non-reinsurance related component of policy loans has been classified as Level 3 within the fair value hierarchy.

FHLBI Capital Stock

FHLBI capital stock, which is included in other invested assets, can only be sold to FHLBI at a constant price of $100 per share. Due to the lack of valuation uncertainty, the investment has been classified as Level 1.

Other Contract Holder Funds

Fair values for immediate annuities without mortality features are derived by discounting the future estimated cash flows using current market interest rates for similar maturities. Fair values for deferred annuities, including the fixed option on variable annuities, fixed annuities, fixed index annuities and RILAs, are determined using projected future cash flows discounted at current market interest rates.

Fair values for guaranteed investment contracts are based on the present value of future cash flows discounted at current market interest rates.

Fair values for trust instruments supported by funding agreements are based on the present value of future cash flows discounted at current market interest rates.

Fair values of the FHLB funding agreements are based on the present value of future cash flows discounted at current market interest rates.

Funds Withheld Payable Under Reinsurance Treaties

The fair value of the funds withheld payable is equal to the fair value of the assets held as collateral, which primarily consists of bonds, mortgages, limited partnerships, and cash and cash equivalents. The fair value of the assets generally useuses industry standard valuation techniques as described above and the funds withheld payable components are valued consistent with the assets in the fair value hierarchy.


4953
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements

Debt

Fair values for the Company’s surplus notes and long-term debt are generally determined by prices obtained from independent broker dealers or discounted cash flow models. Such prices are derived from market observable inputs and are classified as Level 2.

Securities Lending Payable

The Company’s securities lending payable is set equal to the cash collateral received. Due to the short-term nature of the loans, carrying value is a reasonable estimate of fair value and is classified as Level 2.

FHLB Advances

Carrying value of the Company’s FHLB advances, which are included in other liabilities, is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2.

Repurchase Agreements

Carrying value of the Company’s repurchase agreements is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2.

Separate Account Liabilities

The values of separate account liabilities are set equal to the values of separate account assets, which are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2.


5054

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements
The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value (in millions).:

March 31, 2022March 31, 2023
Fair ValueFair Value
Carrying
Value		TotalLevel 1Level 2Level 3Carrying
Value		TotalLevel 1Level 2Level 3
AssetsAssetsAssets
Mortgage loansMortgage loans$11,430 $11,448 $— $— $11,448 Mortgage loans$10,911 $10,346 $— $— $10,346 
Policy loansPolicy loans991 991 — — 991 Policy loans950 950 — — 950 
FHLBI capital stockFHLBI capital stock146 146 146 — — FHLBI capital stock146 146 146 — — 
LiabilitiesLiabilitiesLiabilities
Annuity reserves (1)
Annuity reserves (1)
$36,397 $37,927 $— $— $37,927 
Annuity reserves (1)
$35,256 $31,015 $— $— $31,015 
Reserves for guaranteed investment contracts (2)
Reserves for guaranteed investment contracts (2)
1,052 1,050 — — 1,050 
Reserves for guaranteed investment contracts (2)
989 958 — — 958 
Trust instruments supported by funding agreements (2)
Trust instruments supported by funding agreements (2)
6,121 6,084 — — 6,084 
Trust instruments supported by funding agreements (2)
5,597 5,404 — — 5,404 
FHLB funding agreements (2)
FHLB funding agreements (2)
2,000 1,956 — — 1,956 
FHLB funding agreements (2)
2,105 2,007 — — 2,007 
Funds withheld payable under reinsurance treaties (3)(4)
23,867 23,867 524 18,365 4,978 
Funds withheld payable under reinsurance treatiesFunds withheld payable under reinsurance treaties21,451 21,451 — — 21,451 
DebtDebt2,640 2,572 — 2,572 — Debt2,632 2,403 — 2,403 — 
Securities lending payableSecurities lending payable15 15 — 15 — Securities lending payable39 39 — 39 — 
FHLB advances500 500 — 500 — 
Repurchase agreementsRepurchase agreements584 584 — 584 — Repurchase agreements1,085 1,085 — 1,085 — 
Separate Account Liabilities (5)
231,198 231,198 — 231,198 — 
Separate account liabilities (3)
Separate account liabilities (3)
204,366 204,366 — 204,366 — 
December 31, 2021December 31, 2022
Fair ValueFair Value
Carrying
Value		TotalLevel 1Level 2Level 3Carrying
Value		TotalLevel 1Level 2Level 3
AssetsAssetsAssets
Mortgage loansMortgage loans$11,482 $11,910 $— $— $11,910 Mortgage loans$10,967 $10,259 $— $— $10,259 
Policy loansPolicy loans1,008 1,008 — — 1,008 Policy loans958 958 — — 958 
FHLBI capital stockFHLBI capital stock125 125 125 — — FHLBI capital stock146 146 146 — — 
LiabilitiesLiabilitiesLiabilities
Annuity reserves (1)
Annuity reserves (1)
$36,318 $46,045 $— $— $46,045 
Annuity reserves (1)
$36,222 $31,242 $— $— $31,242 
Reserves for guaranteed investment contracts (2)
Reserves for guaranteed investment contracts (2)
894 923 — — 923 
Reserves for guaranteed investment contracts (2)
1,128 1,099 — — 1,099 
Trust instruments supported by funding agreements (2)
Trust instruments supported by funding agreements (2)
5,986 6,175 — — 6,175 
Trust instruments supported by funding agreements (2)
5,887 5,760 — — 5,760 
FHLB funding agreements (2)
FHLB funding agreements (2)
1,950 1,938 — — 1,938 
FHLB funding agreements (2)
2,004 2,104 — — 2,104 
Funds withheld payable under reinsurance treaties (3)
24,533 24,533 537 19,127 4,869 
Funds withheld payable under reinsurance treatiesFunds withheld payable under reinsurance treaties22,533 22,533 — — 22,533 
DebtDebt2,649 2,745 — 2,745 — Debt2,635 2,344 — 2,344 — 
Securities lending payableSecurities lending payable17 17 — 17 — Securities lending payable36 36 — 36 — 
FHLB advances— — — — — 
Repurchase agreementsRepurchase agreements1,572 1,572 — 1,572 — Repurchase agreements1,012 1,012 — 1,012 — 
Separate Account Liabilities (5)
248,949 248,949 — 248,949 — 
Separate account liabilities (3)
Separate account liabilities (3)
195,906 195,906 — 195,906 — 
(1) Annuity reserves represent only the components of other contract holder funds that are considered to be financial instruments.
(1) Annuity reserves represent only the components of other contract holder funds that are considered to be financial instruments.
(1) Annuity reserves represent only the components of other contract holder funds that are considered to be financial instruments.
(2) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets.
(2) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets.
(2) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets.
(3) Excludes $742 million and $715 million of limited partnership investments measured at NAV at March 31, 2022 and December 31, 2021, respectively.
(4) Excludes $111 million of non-financial instruments at March 31, 2022.
(5) The values of separate account liabilities are set equal to the values of separate account assets.
(3) The values of separate account liabilities are set equal to the values of separate account assets.
(3) The values of separate account liabilities are set equal to the values of separate account assets.

5155

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 7. Deferred Acquisition Costs

7. Deferred Acquisition Costs

The balancesThis note contains the new accounting policy for the adoption of and changes, inLDTI

Certain costs that are directly related to the successful acquisition of new or renewal insurance business are capitalized as deferred acquisition costs werein the period they are incurred. These costs primarily pertain to commissions and certain costs associated with policy issuance and underwriting. All other acquisition costs are expensed as followsincurred.

Contracts are grouped into cohorts by contract type and issue year. For traditional and limited-payment insurance contracts, contracts are grouped consistent with the groupings used in estimating the associated liability. Deferred acquisition costs are amortized into expense on a constant level basis over the expected term of the grouped contracts. For traditional and limited-payment insurance contracts, amortization is determined based on projected in force amounts. For non-traditional contracts, amortization is determined based on projected policy counts.

The expected term used to amortize deferred acquisition costs is determined using best estimate assumptions, including mortality and persistency, consistent with the best estimate assumptions used to determine the reserve for future policy benefits, market risk benefits, and additional liabilities for applicable contracts. For amortization of deferred acquisition costs related to contracts without these balances, assumptions used to determine expected term are developed in a similar manner. The amortization rate is determined using all information available as of the end of the reporting period, including actual experience and any assumption updates. Annually, or as circumstances warrant, a comprehensive review of assumptions is conducted and assumptions are revised as appropriate. If assumptions are revised, the amortization rate is calculated using revised assumptions such that the effect of revised assumptions is recognized prospectively as of the beginning of that reporting period.

Unamortized deferred acquisition costs are written off when a contract is internally replaced and substantially changed. Substantially unchanged contracts are treated as a continuation of the replaced contract, with no change to the unamortized deferred acquisition costs at the time of the replacement.

The following table presents the roll-forward of the deferred acquisition costs (in millions):millions, 2022 information recast for the adoption of LDTI). The current period amortization is based on the end of the period estimates of mortality and persistency. The amortization pattern is revised on a prospective basis at the beginning of the period based on the period’s actual experience.
.
Three Months Ended March 31,Three Months Ended March 31,Twelve months Ended December 31,
2022202120232022
Variable AnnuitiesVariable Annuities
Balance, beginning of periodBalance, beginning of period$14,249$13,897Balance, beginning of period$12,699 $13,364 
Deferrals of acquisition costsDeferrals of acquisition costs179199Deferrals of acquisition costs104 544 
AmortizationAmortization(288)(1,209)
Variable Annuities balance, end of periodVariable Annuities balance, end of period$12,515 $12,699 
Amortization(515)(812)
Unrealized investment (gains) losses124108
Balance, end of period$14,037$13,392
Reconciliation of total deferred acquisition costsReconciliation of total deferred acquisition costs
Variable Annuities balance, end of periodVariable Annuities balance, end of period$12,515 $12,699 
Other product lines, end of periodOther product lines, end of period245 224 
Total balance, end of periodTotal balance, end of period$12,760 $12,923 
See Note 7 of

56
Item 1 | Notes to Condensed Consolidated Financial Statements in Part II, Item 8, Financial Statements and Supplementary Data of the Company’s annual report on Form 10-K for the year ended December 31, 2021, for more information regarding deferred acquisition costs.(Unaudited) | 8. Reinsurance


8. Reinsurance

This note contains the new accounting policy for the adoption of LDTI.

The Company, through its subsidiary insurance companies, assumes and cedes reinsurance from and to other insurance companies in order to limit losses from large exposures. However, if the reinsurer is unable to meet its obligations, the originating issuer of the coverage retains the liability. The Company reinsures certain of its risks to other reinsurers under a coinsurance, coinsurance with funds withheld, modified coinsurance, or yearly renewable term basis. The Company regularly monitors the financial strength ratings of its reinsurers.

The Company has also acquired certain lines of business that are wholly ceded to non-affiliates. These include both direct and assumed accident and health business, direct and assumed life insurance business, and certain institutional annuities.

Athene Reinsurance

The Company entered into a funds withheld coinsurance agreement with Athene effective June 1, 2020 to reinsure on 100% quota share basis, a block of Jackson’s in-force fixed and fixed-index annuity product liabilities in exchange for a $1.2 billion ceding commission. The coinsurance with funds withheld agreement required Jackson to establish a segregated account in which the investments supporting the ceded obligations are maintained. While the economic benefits of the investments flow to Athene, Jackson retains physical possession and legal ownership of the investments supporting the reserve. Further, the investments in the segregated account are not available to settle any policyholder obligations other than those specifically covered by the coinsurance agreement and are not available to settle obligations to general creditors of Jackson. The profit and loss with respect to obligations ceded to Athene are included in periodic net settlements pursuant to the coinsurance agreement. To further support its obligations under the coinsurance agreement, Athene procured $1.2 billion in letters of credit for Jackson’s benefit and established a trust account for Jackson’s benefit, which had a book value of approximately $360$147 million at March 31, 2022.2023.

Swiss Re Reinsurance

The CompanyJackson has 3three retrocession reinsurance agreements (“retro treaties”) with Swiss Reinsurance Company Ltd. (“SRZ”). Pursuant to these retro treaties, the CompanyJackson ceded to SRZ on a 100% coinsurance with funds withheld basis, subject to pre-existing reinsurance with other parties, certain blocks of business. As a result of the reinsurance agreements with SRZ, Jackson withholds certain assets, primarily in the form of policy loans and debt securities, as collateral for the reinsurance recoverable.

The Company has also acquired certain blocks of business that are closed to new business and wholly ceded to non-affiliates. These include both direct and assumed accident and health business, direct and assumed life insurance business, and certain institutional annuities.

GMIB Reinsurance

The Company’s guaranteed minimum income benefits (GMIBs) are reinsured with an unrelated party. GMIB reinsured benefits are subject to aggregate annual claim limits. Deductibles also apply on reinsurance of GMIB business issued since March 1, 2005. The Company discontinued offering the GMIB in 2009.

Reinsurance Recoverables and Reinsured Market Risk Benefits

Ceded reinsurance agreements are reported on a gross basis on the Company’s Condensed Consolidated Balance Sheets as an asset for amounts recoverable from reinsurers or as a component of other assets or liabilities for amounts, such as premiums, owed to or due from reinsurers.

57
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance
Reinsurance recoverables relating to reinsurance of traditional and limited-payment contracts are required to be recognized and measured in a manner consistent with the liabilities relating to the underlying reinsured contracts, including using consistent assumptions. Reinsurance contracts may be executed subsequent to the direct contract issue dates, and market interest rates may have changed between the date that the underlying insurance contracts were issued and the date the reinsurance contract is recognized in the financial statements, resulting in the underlying discount rate differing between the direct and reinsured business.

The Company regularly monitors the financial strength ratings of its reinsurers. At March 31, 2023 and December 31, 2022, the Company had ACL of $15 million and $15 million, respectively, on its reinsurance recoverables, which are reported net of ACL on the Condensed Consolidated Balance Sheets. The ACL considers the credit quality of the reinsurer and is generally determined based on probability of default and loss given default assumptions, after considering any applicable collateral arrangements. For reinsurance recoverables that are collateralized, and the amount of collateral is expected to be adjusted as necessary as a result of fair value changes in the collateral, the Company determines that the expectation of nonpayment of the carrying value of the reinsurance recoverable is zero. If the fair value of the collateral at the reporting date is less than the carrying value of the reinsurance recoverable, the Company recognizes an ACL on the difference between the fair value of the collateral at the reporting date and the carrying value of the reinsurance recoverable. Additions to or releases of the ACL are reported in death, other policyholder benefits, and changes in reserves, net of deferrals in the Condensed Consolidated Income Statements.

Reinsurance recoverable on market risk benefits is recognized at fair value. The change in the fair value of reinsurance recoverable on market risk benefits, including the change in fair value due to the change in third-party credit risk (i.e., credit risk of the reinsurer), is recognized in current period earnings within market risk benefit (gains) losses, net.

The Company’s reinsurance contract that cedes only the GMIB elected on certain variable annuity products is classified as a reinsurance recoverable on market risk benefits. These reinsured MRBs may have direct MRB balances recorded as either assets or liabilities; however, because the unit of account for the reinsured MRB is the reinsurance contract, the ceded MRB is presented in total within reinsurance recoverable on market risk benefits. The fees used to determine the fair value of the reinsurance recoverable on market risk benefits are those defined in the reinsurance contract.

Guaranteed benefits related to the optional lifetime income rider offered on certain fixed index annuities are market risk benefits that are reinsured with Athene. The reinsured market risk benefit is measured using a non-option valuation approach which uses cash flow assumptions and an attributed fee ratio consistent with those used to measure the market risk benefit on the direct contract and a discount rate that considered the reinsurer’s credit risk. The attributed fee is locked-in at inception of the contract.

Components of the Company’s reinsurance recoverable excluding market risk benefits were as follows (in millions, 2022 information recast for the adoption of LDTI):

March 31,December 31,
20232022
Reserves:
Life$5,255 $5,307 
Accident and health494 482 
Annuity benefits (1)
21,617 22,470 
Claims liability and other712 787 
Total$28,078 $29,046 
(1)Other annuity benefits primarily attributable to fixed and fixed index annuities reinsured with Athene.


5258
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance
Components of the Company’s reinsurance recoverable on market risk benefits were as follows (in millions, recast for the adoption of LDTI):

March 31,December 31,
20232022
Variable annuity$192 $183 
Other product lines46 38 
Total$238 $221 

Reinsurance and Funds Withheld Payable Under Reinsurance Treaties

Under the reinsurance agreement with Athene and the retro treaties with SRZ, the Company maintains ownership of the underlying investments instead of transferring them to the reinsurer and, as a result, records a funds withheld liability payable to the reinsurer.Investment returns earned on withheld assets are paid by the Company to the reinsurer, pursuant to the terms of the agreements. Investment income and net gains (losses) on derivatives and investments are reported net of gains or losses on the funds withheld payable under reinsurance treaties.

The amounts credited to reinsurers on the funds withheld payable is based on the return earned on those assets which is subject to the credit risk of the original issuer of the instrument rather than Jackson’s own creditworthiness, which results in an embedded derivative (total return swap).

Funds withheld under reinsurance agreement with Athene

The Company recognizes a liability for the embedded derivative related to the funds withheld under the reinsurance agreement with Athene within funds withheld payable under reinsurance treaties in the Condensed Consolidated Balance Sheets. The embedded derivative is measured at fair value with changes in fair value reported in net gains (losses) on derivatives and investments in the Condensed Consolidated Income Statements. At inception of the reinsurance agreement with Athene, the fair value of the withheld investments differed from their book value and, accordingly, while the investments are held, the amortization of this difference is reported in net gains (losses) on derivatives and investments in the Condensed Consolidated income Statements.

Funds withheld under reinsurance agreements with SRZ

At execution of the retro treaties with SRZ, the Company elected the fair value option for the withheld assets, as well as the related funds withheld payable. Accordingly, the embedded derivative is not bifurcated or separately measured. The funds withheld payable is measured at fair value with changes in fair value reported in net gains (losses) on derivatives and investments. The fair value of the funds withheld payable is equal to the fair value of the assets held as collateral.


59
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance
The following assets and liabilities were held in support of reserves associated with the Company’s funds withheld reinsurance agreements and were reported in the respective financial statement line items in the Condensed Consolidated Balance Sheets (in millions):

March 31,December 31,March 31,December 31,
2022202120232022
AssetsAssetsAssets
Debt securities, available-for-saleDebt securities, available-for-sale$17,128 $19,094 Debt securities, available-for-sale$13,264 $13,622 
Debt securities, at fair value under the fair value optionDebt securities, at fair value under the fair value option158 164 Debt securities, at fair value under the fair value option162 159 
Equity securitiesEquity securities99 116 Equity securities73 77 
Mortgage loansMortgage loans4,666 4,739 Mortgage loans4,004 4,127 
Mortgage loans, at fair value under the fair value optionMortgage loans, at fair value under the fair value option190 — Mortgage loans, at fair value under the fair value option480 582 
Policy loansPolicy loans3,490 3,483 Policy loans3,441 3,435 
Freestanding derivative instruments, netFreestanding derivative instruments, net51 37 Freestanding derivative instruments, net58 78 
Other invested assetsOther invested assets793 715 Other invested assets821 793 
Cash and cash equivalentsCash and cash equivalents450 438 Cash and cash equivalents106 260 
Accrued investment incomeAccrued investment income156 162 Accrued investment income156 166 
Other assets and liabilities, netOther assets and liabilities, net(47)(56)Other assets and liabilities, net(57)(73)
Total assets (1)
Total assets (1)
$27,134 $28,892 
Total assets (1)
$22,508 $23,226 
LiabilitiesLiabilitiesLiabilities
Funds held under reinsurance treaties (2)
Funds held under reinsurance treaties (2)
$27,199 $29,007 
Funds held under reinsurance treaties (2)
$22,254 $22,957 
Total liabilitiesTotal liabilities$27,199 $29,007 Total liabilities$22,254 $22,957 
(1)     Certain assets are reported at amortized cost while the fair value of those assets is reported in the embedded derivative in the funds withheld liability.
(2) Includes funds withheld embedded derivative asset (liability) of $1,161$2,788 million and $(120)$3,158 million at March 31, 20222023 and December 31, 2021,2022, respectively.


The sources of income related to funds withheld under reinsurance treaties reported in net investment income in the Condensed Consolidated Income Statements were as follows (in millions):

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Debt securities (1)
Debt securities (1)
$150 $203 
Debt securities (1)
$172 $150 
Equity securitiesEquity securities(16)(1)Equity securities(1)(16)
Mortgage loans (2)
Mortgage loans (2)
52 35 
Mortgage loans (2)
66 52 
Policy loansPolicy loans80 81 Policy loans81 80 
Limited partnershipsLimited partnerships16 3 Limited partnerships8 16 
Total investment income on funds withheld assets Total investment income on funds withheld assets282 321  Total investment income on funds withheld assets326 282 
Other investment expenses on funds withheld assets (3)
Other investment expenses on funds withheld assets (3)
(22)(30)
Other investment expenses on funds withheld assets (3)
(19)(22)
Total net investment income on funds withheld reinsurance treaties Total net investment income on funds withheld reinsurance treaties$260 $291  Total net investment income on funds withheld reinsurance treaties$307 $260 
    
(1)    Includes $2 million and $(6) million and $(1) as offor the three months ended March 31, 20222023 and 2021,2022, respectively, related to the change in fair value for securities carried under the fair value option.
(2)    Includes $(2) million and $2 million and nil as offor the three months ended March 31, 20222023 and 2021,2022, respectively, related to the change in fair value for mortgage loans carried under the fair value option.
(3)    Includes management fees.


53
60

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance
The gains and losses on funds withheld reinsurance treaties as a component of net gains (losses) on derivatives and investments in the Condensed Consolidated Income Statements were as follows (in millions):

Three Months Ended March 31,
20222021
Available-for-sale securities
      Realized gains on sale$37 $173 
      Realized losses on sale(27)(2)
      Credit loss expense(28)— 
Credit loss expense on mortgage loans(2)7 
Other(16)(8)
Net gains (losses) on non-derivative investments(36)170 
Net gains (losses) on derivative instruments21 17 
Net gains (losses) on funds withheld payable under reinsurance treaties (1)
1,043 711 
     Total net gains (losses) on derivatives and investments$1,028 $898 
(1) Includes the Athene embedded derivative gain (loss) of $1,281 million and $998 million for the three months ended March 31, 2022, and 2021, respectively.
While the economic benefits of the funds withheld assets flow to the respective reinsurers, Jackson retains physical possession and legal ownership of the investments supporting the reserves. Net investment income and net gains (losses) on derivatives and investments related to the funds withheld assets are included in periodic settlements under the reinsurance agreements which results in the flow of returns on the assets to the reinsurers. Net gains (losses) on the funds withheld assets are increased or decreased by changes in the embedded derivative liability related to the Athene Reinsurance Agreement and also include (i) changes in the related funds withheld payable and (ii) amortization of the basis difference between book value and fair value of the investments as of the effective date of the reinsurance agreements.

Components of the Company’s reinsurance recoverable were as follows (in millions):

March 31,December 31,
20222021
Reserves:
Life$5,764 $5,829 
Accident and health543 547 
Guaranteed minimum income benefits232 262 
Other annuity benefits (1)
24,981 25,625 
Claims liability and other882 863 
Total$32,402 $33,126 
(1)Other annuity benefits primarily attributable to fixed and fixed index annuities reinsured with Athene.
Three Months Ended March 31,
20232022
Available-for-sale securities
      Realized gains on sale$5 $37 
      Realized losses on sale(38)(27)
      Credit loss expense(11)(28)
Credit loss expense on mortgage loans(3)(2)
Other9 (16)
Net gains (losses) on non-derivative investments(38)(36)
Net gains (losses) on derivative instruments(9)21 
Net gains (losses) on funds withheld payable under reinsurance treaties (1)
(626)1,043 
     Total net gains (losses) on derivatives and investments$(673)$1,028 
(1) Includes the Athene embedded derivative gain (loss) of $(370) million and $1,281 million for the three months ended March 31, 2023 and 2022, respectively.

9. Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds

This note contains the new accounting policy for the adoption of LDTI

Reserves for Future Policy Benefits

For non-participating traditional lifeand limited-payment insurance contracts, the reserve for future policy benefits represents the present value of estimated future policy benefits to be paid to or on behalf of policyholders in future periods and certain related expenses less the present value of estimated future net premiums.

Reserves for future policy benefits for non-participating traditional and limited-payment insurance contracts are measured using the net premium ratio (NPR) measurement model. The NPR measurement model accrues for future policy benefits in proportion to the premium revenue recognized. The reserve for future policy benefits is derived from the Company's best estimate of future net premium and future benefits and expenses, which include termis based on best estimate assumptions including mortality, persistency, claims expense, and whole life,discount rate. On an annual basis, or as circumstances warrant, we conduct a comprehensive review of our current best estimate assumptions based on our experience, industry benchmarking, and other factors, as applicable. Expense assumptions are updated based on estimates of expected non-level costs, such as termination or settlement costs, and costs after the premium-paying period and exclude acquisition costs or any costs that are required to be charged to expenses as incurred. Updates to assumptions are applied on a retrospective basis, and the change in the reserve for future policy benefits resulting from updates to assumptions is reported separately on the Condensed Consolidated Income Statements within the (Gain) loss from updating future policy benefits cash flow assumptions, net. Each reporting period the reserve for future policy benefits is updated to reflect actual experience to date.

The Company establishes cohorts, which are groupings used to measure reserves for future policy benefits. In determining cohorts, the Company considered both qualitative and quantitative factors, including the issue year, type of product, product features, and legal entity.

The discount rate used to estimate reserves for future policy benefits are determined using the net level premium method and assumptions as of the issue date or acquisition date asis consistent with an upper-medium grade (low-credit risk) fixed-income corporate instrument yield, which has been interpreted to mortality, interest, lapse and expenses, plus provisions for adverse deviations. These assumptions are not unlocked unless the reserverepresent a single-A corporate instrument yield. This discount rate curve is determined by fitting a parametric function to be deficient. Interestyields to maturity and related times to maturity of market observable single-A rated corporate instruments. The discount rate assumptions range from 2.5%used to 6.0%. Lapse, mortality, and expense assumptions for recoverability are based primarilyrecognize interest accretion on Company experience. The Company’s liabilitythe reserves for future policy benefits also includes net liabilitiesis locked at the initial measurement of the cohort. Each reporting period, the reserve for guaranteedfuture policy benefits relatedis remeasured using the current discount rate. The difference between the reserve calculated using the current discount rate and the reserve calculated using the locked-in discount rate is recorded in other comprehensive income.
61
Item 1 | Notes to certain nontraditional long-duration lifeCondensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and annuity contracts, which are further discussed in Note 10.Claims Payable

Group payout annuities consistFor limited-payment insurance contracts, premiums are paid over a period shorter than the period over which benefits are provided. Gross premiums received in excess of the net premium are deferred and recognized as a closed block of defined benefit annuity plans.deferred profit liability ("DPL"). The liabilityDPL is included within the reserve for future policy benefits for these limited payment contractsand profits are recognized in income as a component of benefit expenses on a constant relationship with the amount of expected future benefit payments. Interest is calculated using assumptions asaccreted on the balance of the acquisition date asDPL using the discount rate locked in at the initial measurement of the cohort. Measurement of the DPL uses best estimate assumptions for mortality. These assumptions are similarly subject to mortality and expense plus provisions for adverse deviation.the annual review process discussed above.
54

Additional Liabilities – Universal Life-type

For universal life-type insurance contracts, a liability is recognized for the policyholder’s account value as discussed further in Note 10 of the Notes to Condensed Consolidated Financial Statements. Where these contracts provide additional benefits beyond the account balance or base insurance coverage that are not market risk benefits or embedded derivatives, liabilities in addition to the policyholder’s account value are recognized. These additional liabilities for annuitization, death and other insurance benefits are reported within reserves for future policy benefits and claims payable. The methodology uses a benefit ratio defined as a constant percentage of the assessment base. This ratio is multiplied by current period assessments to determine the reserve accrual for the period. The assumptions used in the measurement of the additional liabilities for annuitization, death and other insurance benefits are based on best estimate assumptions including mortality, persistency, investment returns, and discount rates. These assumptions are similarly subject to the annual review process discussed above. As available-for-sale debt securities are carried at fair value, an adjustment is made to these additional liabilities equal to the change in liability that would have occurred if such securities had been sold at their stated fair value and the proceeds reinvested at current yields. This adjustment, along with the change in net unrealized gains (losses) on available-for-sale debt securities, net of applicable tax, is credited or charged directly to equity as a component of other comprehensive income.

See Note 10 of the Notes to Condensed Consolidated Financial Statements for more information regarding other contract holder funds.

Other Future Policy Benefits and Claims Payable

In conjunction with a prior acquisition, the Company recorded a fair value adjustment at acquisition related to certain annuity and interest sensitiveinterest-sensitive liability blocks of business to reflect the cost of the interest guarantees within the in-force liabilities, based on the difference between the guaranteed interest rate and an assumed new money guaranteed interest rate at acquisition. This adjustment was recordedis included in reserves forother future policy benefits and claims payable.payable as disclosed in the table below. This reserveliability is reassessedremeasured at the end of each period, taking into account changes in the in-force block. Any resulting change in the reserveliability is recorded as a change inGain (loss) from updating future policy reservebenefits cash flow assumptions, net through the consolidated income statements.Condensed Consolidated Income Statements.

In addition, annuity and life claims liabilities in course of settlement are included in other future policy benefits and claims payable as disclosed in the table below.

62
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable
The following table sets forthsummarizes the Company’s reserves for future policy benefits and claims payable balances (in millions)millions, 2022 information recast for the adoption of LDTI):

March 31,December 31,
20222021
Traditional life$4,127 $4,187 
Guaranteed benefits (1)
3,487 5,477 
Claims payable1,135 1,050 
Accident and health1,194 1,204 
Group payout annuities4,819 4,895 
Other805 816 
     Total$15,567 $17,629 
March 31,December 31,
20232022
Reserves for future policy benefits
Payout Annuities$1,067 $1,042 
Closed Block Life4,183 4,161 
Closed Block Annuity4,437 4,434 
Reserves for future policy benefits9,687 9,637 
Additional liabilities
Closed Block Life1,117 1,131 
Other future policy benefits and claims payable1,565 1,550 
Reserves for future policy benefits and claims payable$12,369 $12,318 
(1)
The following tables present the roll-forward of components of reserves for future policy benefits (in millions, 2022 information recast for the adoption of LDTI):

Present Value of Expected Net Premiums
Three Months Ended March 31,Year Ended December 31,
20232022
PayoutClosed BlockClosed BlockPayoutClosed BlockClosed Block
AnnuitiesLifeAnnuityAnnuitiesLifeAnnuity
Balance, beginning of period$— $1,287 $— $— $1,464 $— 
Beginning of period cumulative effect of changes in discount rate assumptions— 161 — — (157)— 
Beginning balance at original discount rate— 1,448 — — 1,307 — 
Effect of changes in cash flow assumptions— — — — 242 — 
Effect of actual variances from expected experience— (78)— — 1 — 
Balance adjusted for variances from expectation— 1,370 — — 1,550 — 
Issuances— 2 — — 6 — 
Interest accrual— 9 — — 39 — 
Net premiums collected— (44)— — (147)— 
Ending balance at original discount rate— 1,337 — — 1,448 — 
End of period cumulative effect of changes in discount rate assumptions— (123)— — (161)— 
Balance, end of period$— $1,214 $— $— $1,287 $— 

63
Item 1 | Primarily includes the embedded derivative liabilities relatedNotes to the GMWB reserve.Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable
Present Value of Expected Future Policy Benefits
Three Months Ended March 31,Year Ended December 31,
20232022
PayoutClosed BlockClosed BlockPayoutClosed BlockClosed Block
AnnuitiesLifeAnnuityAnnuitiesLifeAnnuity
Balance, beginning of period$1,042 $5,448 $4,434 $1,249 $6,913 $5,739 
Beginning of period cumulative effect of changes in discount rate assumptions132 958 275 (84)(349)(689)
Beginning balance at original discount rate (including DPL of $40, $0 and $671 in March 31, 2023, and, $38, $0 and $459 in December 31, 2022 for payout annuities, closed block life and closed block annuity, respectively)1,174 6,406 4,709 1,165 6,564 5,050 
Effect of changes in cash flow assumptions— — — 4 331 (15)
Effect of actual variances from expected experience(5)(71)(1)(37)38 (34)
Balance adjusted for variances from expectation1,169 6,335 4,708 1,132 6,933 5,001 
Issuances29 4 — 126 14 4 
Interest accrual10 51 50 40 209 210 
Benefits payments(33)(167)(124)(124)(750)(506)
Ending balance of original discount rate (including DPL of $40, $0 and $658 in March 31, 2023, and, $40, $0 and $671 in December 31, 2022 for payout annuities, closed block life and closed block annuity, respectively)1,175 6,223 4,634 1,174 6,406 4,709 
End of period cumulative effect of changes in discount rate assumptions(108)(826)(197)(132)(958)(275)
Balance, end of period$1,067 $5,397 $4,437 $1,042 $5,448 $4,434 
Reserves for future policy benefits1,067 4,183 4,437 1,042 4,161 4,434 
Less: Reinsurance recoverable81 2,260 2 71 2,263 2 
Reserves for future policy benefits, after reinsurance recoverable$986 $1,923 $4,435 $971 $1,898 $4,432 

The following table sets forthpresents the Company’sweighted average duration of the reserves for future policy benefits (2022 information recast for the adoption of LDTI).. The weighted average duration represents average cohort-level duration weighted by the benefit reserves amount:

PayoutClosed BlockClosed Block
AnnuitiesLifeAnnuity
March 31, 2023
Weighted average duration (years)7.07.97.1
December 31, 2022
Weighted average duration (years)6.97.87.0

The significant assumptions used in the future policy benefits calculation consist of mortality, persistency, and discount rate. We have undertaken a comprehensive review of the significant assumptions used in the future policy benefits calculation. No significant changes were made to the mortality, persistency or claim expense assumptions during first quarter of 2023. During 2022, increase in benefits from active life reserves for certain Closed Block Life policies resulted in an increase in the liability for future policy benefits. However, this business is fully reinsured, resulting in no impact to the Company. No other significant changes were made during 2022.

The discount rate assumption was updated based on current market data. Discount rates decreased in the first quarter of 2023 since the fourth quarter of 2022 primarily due to the decrease in risk-free rates resulting in an increase in liability for future policy benefits. Discount rates increased substantially throughout 2022 primarily due to increases in risk-free rates which resulted in a decrease in the liability for future policy benefits. Refer to the roll-forward above for further details.
64
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable

The following table presents the amount of undiscounted and discounted expected future gross premiums and expected future benefit payments for future policy benefits for non-participating traditional and limited-payment insurance contracts (in millions, 2022 information recast for the adoption of LDTI). The discounted premiums are calculated using the current discount rate, while the undiscounted cash flows represent the gross cash flows before any discounting is applied:

March 31, 2023December 31, 2022
UndiscountedDiscountedUndiscountedDiscounted
Payout Annuities
Expected future benefit payments$1,555 $1,027 $1,542 $999 
Expected future gross premiums— — — — 
Closed Block Life
Expected future benefit payments8,512 5,526 8,751 5,578 
Expected future gross premiums5,729 3,392 5,976 3,489 
Closed Block Annuity
Expected future benefit payments5,733 3,746 5,834 3,729 
Expected future gross premiums$— $— $— $— 

The following table presents the amount of revenue and interest related to non-participating traditional and limited-pay insurance contracts recognized in the Condensed Consolidated Income Statements (in millions, 2022 information recast for the adoption of LDTI):

Gross PremiumsInterest Expense
Three Months Ended March 31, 2023Year Ended December 31, 2022Three Months Ended March 31, 2023Year Ended December 31, 2022
Payout Annuities$4 $10 $10 $40 
Closed Block Life64 390 42 170 
Closed Block Annuity— — 50 210 
Total$68 $400 $102 $420 

The following table presents the weighted average interest rate for the reserves for future policy benefits at the cohort's level for the locked-in discount rate (interest accretion rate), and current discount rate, weighted by the cohort's benefit reserve amount (2022 information recast for the adoption of LDTI):

March 31, 2023December 31, 2022
Payout Annuities
Interest accretion rate3.74 %3.71 %
Current discount rate5.11 %5.40 %
Closed Block Life
Interest accretion rate3.02 %3.01 %
Current discount rate5.08 %5.34 %
Closed Block Annuity
Interest accretion rate4.40 %4.40 %
Current discount rate5.12 %5.41 %


65
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable
The following table presents a roll-forward of Closed Block Life additional liabilities for annuitization, death and other insurance benefits (in millions, 2022 information recast for the adoption of LDTI):

Three Months Ended March 31, 2023Year Ended December 31, 2022
Balance, beginning of period$1,131 $1,173 
Beginning of period cumulative effect of changes in shadow adjustments41 (14)
Beginning balance excluding shadow1,172 1,159 
Effect of changes in cash flow assumptions— 6 
Effect of actual variances from expected experience12 58 
Interest accrual14 56 
Net assessments collected(57)(107)
Ending balance excluding shadow1,141 1,172 
End of period cumulative effect of changes in shadow adjustments(24)(41)
Balance, end of period$1,117 $1,131 

The following table presents the weighted average duration of Closed Block Life additional liabilities for annuitization, death and other insurance benefits. The weighted average duration represents average cohort-level duration weighted by the benefit reserves amount (2022 information recast for the adoption of LDTI):

March 31, 2023December 31, 2022
Weighted average duration (years)7.78.1

The significant assumptions used in the additional liability for annuitization, death and other insurance benefits calculation consists of mortality, persistency, investment returns, and crediting rate. We have undertaken a comprehensive review of the significant assumptions used in the additional liability for annuitization, death and other insurance benefits calculation, and did not make any significant changes to the mortality, persistency, investment returns, or crediting rates in 2022 and will review these assumptions later in 2023.

The following table presents assessments and interest expense of Closed Block Life additional liabilities for annuitization, death and other insurance benefits recognized in the Condensed Consolidated Income Statements (in millions, 2022 information recast for the adoption of LDTI):

AssessmentsInterest Expense
Three Months Ended March 31, 2023Year Ended December 31, 2022Three Months Ended March 31, 2023Year Ended December 31, 2022
Additional liability for annuitization, death and other insurance benefits$(57)$(107)$14 $56 

The following table presents the weighted average current discount rate of Closed Block Life additional liabilities for annuitization, death and other insurance benefits, applied at the cohort level weighted by reserve benefit amount (2022 information recast for the adoption of LDTI):

March 31, 2023December 31, 2022
Weighted average current discount rate4.96 %4.96 %

66
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds

10. Other Contract Holder Funds

This note contains the new accounting policy for the adoption of LDTI

Other contract holder funds represent the policyholder account balance on our universal life-type products, investment contracts, and the fair value of the embedded derivatives associated with the indexed crediting features on our fixed index annuities and registered index-linked annuities.

Universal life type contracts have an account balance as a principal component in which interest is credited to policyholders and assessments are deducted for mortality risk and contract administration. The account balance is recognized as a liability within other contract holder funds, balances (in millions):and the liability is updated each period for fee and assessment deductions and increased for interest or returns credited to the account balance.

March 31,December 31,
20222021
Interest-sensitive life$11,438 $11,570 
Variable annuity fixed option10,367 10,030 
RILA (1)
305 110 
Fixed annuity15,561 15,816 
Fixed index annuity (2)
12,999 13,333 
GICs, funding agreements and FHLB advances9,173 8,830 
     Total$59,843 $59,689 
Certain of our universal life type contracts contain features that are not classified as market risk benefits or embedded derivatives but provide additional benefits beyond the account balance or base insurance coverage for which a liability in addition to the account balance is necessary. These additional liabilities for death or other insurance benefits are reported as a component of reserves for future policy benefits and claims payable in the Condensed Consolidated Balance Sheets. See Note 9 of the Notes to the Condensed Consolidated Financial Statements for more information regarding these additional liabilities.
(1)
 Includes
Certain contracts without significant mortality or morbidity risk and certain annuities that lack insurance risk are treated as investment contracts. As investment contracts, payments received are reported as liabilities and accounted for in a manner that is consistent with the embedded derivative liabilities related to RILAaccounting for interest-bearing or other financial instruments, within other contract holder funds.

The Company issues a variety of $16 millionannuity products including fixed annuities, fixed index annuities, registered index linked annuities, variable annuities and $6 million at March 31, 2022 and December 31, 2021, respectively.
(2) Includespayout annuities. For annuity contracts that are classified as investment contracts, the embedded derivative liabilities relatedliability is the account balance as of the reporting date, reported within the other contract holder funds. For the variable annuity products only the allocations to fixed index annuity of $1,299 million and $1,439 million at March 31, 2022 and December 31, 2021, respectively.fund options are reported in other contract holder funds.

For interest-sensitive life contracts, liabilities approximate the policyholder’s account value, plus the remaining balance of the fair value adjustment related to previously acquired business, which is further discussed below. The liability forour fixed index annuities and registered index linked annuities, the equity-linked option issued by the Company is basedaccounted for as an embedded derivative measured at fair value and reported as a component of other contract holder funds on three components, 1) the imputedCondensed Consolidated Balance Sheets with changes in fair value recorded in net income within net gains (losses) on derivatives and investments. The fair value is determined using an option-budget method with capital market inputs of the underlying guaranteed hostmarket index returns and discount rates as well as actuarial assumptions including lapse, mortality and withdrawal rates. Favorable equity market movements cause increases in future contract 2)holder benefits, resulting in an increase in the fair value of the embedded optionderivative liability (and vice versa). The Company also establishes a host contract reserve to support the underlying guaranteed account value growth. This host contract liability is included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets. Interest is accreted to the host contract liability using an effective yield method.

Our annuity products may contain certain features or guarantees that are classified as market risk benefits. These market risk benefits are a component of the contract, and 3) the liability for guaranteedmarket risk benefits related to the optional lifetime income rider. For fixed annuities, variable annuity fixed option, and other investment contracts, as includedline items in the above table, the liability is the account value, plus the unamortized balanceCondensed Consolidated Balance Sheet. See Note 12 of the fair value adjustment relatedNotes to previously acquired business. For payout annuities, as included in the above table, reserves are determined under the methodologyCondensed Consolidated Financial Statements for limited-payment contracts (for those with significant life contingencies) or using a constant yield method and assumptions as of the issue date for mortality, interest rates, lapse and expenses plus provisions for adverse deviations. At March 31, 2022, the Company had interest sensitive life business with minimum guaranteed interest rates ranging from 2.5% to 6.0% with a 4.68% average guaranteed rate and fixed interest rate annuities with minimum guaranteed rates ranging from 1.0% to 5.5% and a 1.99% average guaranteed rate.more information regarding market risk benefits.


55

At March 31, 2022 and December 31, 2021, approximately 93% and 94%, respectively,The Company’s institutional products business is comprised of the Company’s annuity account values correspond to crediting rates that are at the minimum guaranteed interest rates. The following tables show the distribution of the annuity account values within the presented ranges of minimum guaranteed interest rates, excluding the reinsured business (in millions):

March 31,2022
Minimum
Guaranteed Interest Rate		Account Value
FixedFixed IndexRILAVariableTotal
1.0%$162 $295 $4 $6,304 $6,765 
>1.0% - 2.0%55 1 — 213 269 
>2.0% - 3.0%1,105 176 — 3,276 4,557 
>3.0% - 4.0%588 — — — 588 
>4.0% - 5.0%276 — — — 276 
>5.0% - 5.5%71 — — — 71 
Subtotal2,257 472 4 9,793 12,526 
Ceded reinsurance11,853 12,527 — — 24,380 
Total$14,110 $12,999 $4 $9,793 $36,906 
December 31, 2021
Minimum
Guaranteed Interest Rate		Account Value
FixedFixed IndexRILAVariableTotal
1.0%$156 $279 $1 $5,988 $6,424 
>1.0% - 2.0%57 1 — 214 272 
>2.0% - 3.0%1,113 183 — 3,254 4,550 
>3.0% - 4.0%594 — — — 594 
>4.0% - 5.0%276 — — — 276 
>5.0% - 5.5%72 — — — 72 
Subtotal2,268 463 1 9,456 12,188 
Ceded reinsurance12,086 12,870 — — 24,956 
Total$14,354 $13,333 $1 $9,456 $37,144 

At both March 31, 2022investment contracts, medium-term funding agreement-backed notes and December 31, 2021, approximately 80% offunding agreements (including agreements issued in conjunction with the Company’s interest sensitive life business account values correspond to crediting rates that are atparticipation in the minimum guaranteed interest rates. The following table shows the distribution of the interest sensitive life business account values within the presented ranges of minimum guaranteed interest rates, excluding the business that is subject to the previously mentioned retro treaties (in millions):

March 31,December 31,
Minimum
Guaranteed Interest Rate		20222021
Account Value - Interest Sensitive Life
>2.0% - 3.0%$249 $252 
>3.0% - 4.0%2,707 2,742 
>4.0% - 5.0%2,367 2,387 
>5.0% - 6.0%1,938 1,967 
Subtotal7,261 7,348 
Retro treaties4,177 4,222 
Total$11,438 $11,570 
U.S. Federal Home Loan Bank ("FHLB") program) described below.

The Company has established a $23$27 billion aggregate Global Medium TermMedium-Term Note ("MTN") program. Jackson National Life Global Funding was formed as a statutory business trust, solely for the purpose of issuing Medium TermMedium-Term Note instruments to institutional investors, the proceeds of which are deposited with the Company and secured by the issuance of funding agreements. The carrying values at March 31, 20222023 and December 31, 20212022 totaled $6.1$5.6 billion and $6.0$5.9 billion, respectively.

56
67

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds

Those Medium-Term Note instruments issued in a foreign currency have been hedged for changes in exchange rates using cross-currency swaps. The unrealized foreign currency gains and losses on those Medium-Term Note instruments are included in the carrying value of the trust instruments supported by funding agreements.

Trust instrument liabilities are adjusted to reflect the effects of foreign currency translation gains and losses using exchange rates as of the reporting date. Foreign currency translation gains and losses are included in net gains (losses) on derivatives and investments.

Jackson and Squire Re are membersis a member of the FHLBI primarily for the purpose of participating in the bank’s mortgage-collateralized loan advance program with long-term funding facilities. Advances are in the form of long-term notes or funding agreements issued to FHLBI. At both March 31, 20222023 and December 31, 2021,2022, the Company held $146 million and $125 million of FHLBI capital stock, respectively, supporting $2.6$2.2 billion and $2.0$2.1 billion in funding agreements and long-term borrowings at March 31, 20222023 and December 31, 2021,2022, respectively.

The Company’s institutional products businessfollowing table presents the liabilities for other contract holder funds (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023December 31, 2022
Payout Annuity$847 $837 
Variable Annuity9,927 10,259 
Fixed Annuity11,082 11,696 
Fixed Indexed Annuities11,375 11,787 
RILA2,501 1,875 
Closed Block Life11,179 11,215 
Closed Block Annuity1,316 1,319 
Institutional Products8,691 9,019 
Other Product Lines176 183 
Total other contract holder funds$57,094 $58,190 

The following table presents a roll-forward of other contract holder funds, gross of reinsurance (in millions, 2022 information recast for the adoption of LDTI):

FixedClosedClosed
PayoutVariableFixedIndexedBlockBlock
AnnuityAnnuityAnnuityAnnuitiesRILALifeAnnuityTotal
Balance as of January 1, 2023$837 $10,259 $11,696 $11,787 $1,875 $11,215 $1,319 $48,988 
Deposits45 316 82 71 533 80 1 1,128 
Surrenders, withdrawals and benefits(64)(457)(748)(556)(17)(198)(16)(2,056)
Net transfers from (to) separate accounts— (242)— — — — — (242)
Investment performance / change in value of equity option— — — 67 108 — — 175 
Interest credited6 73 91 54 2 161 11 398 
Policy charges and other23 (22)(39)(48)— (79)1 (164)
Balance as of March 31, 2023$847 $9,927 $11,082 $11,375 $2,501 $11,179 $1,316 $48,227 

68
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds
FixedClosedClosed
PayoutVariableFixedIndexedBlockBlock
AnnuityAnnuityAnnuityAnnuitiesRILALifeAnnuityTotal
Balance as of December 31, 2021$831 $9,456 $13,185 $13,161 $110 $11,570 $1,394 $49,707 
Deposits213 1,350 276 126 1,811 320 9 4,105 
Surrenders, withdrawals and benefits(230)(1,492)(2,017)(1,414)(8)(766)(118)(6,045)
Net transfers from (to) separate accounts— 870 — — — — — 870 
Investment performance / change in value of equity option— — — (302)(37)— — (339)
Interest credited20 168 389 238 2 659 48 1,524 
Policy charges and other3 (93)(137)(22)(3)(568)(14)(834)
Balance as of December 31, 2022$837 $10,259 $11,696 $11,787 $1,875 $11,215 $1,319 $48,988 

The following table presents weighted average crediting rate, net amount at risk, and cash surrender value of contract holder account balances (dollars in millions, 2022 information recast for the adoption of LDTI):
FixedClosedClosed
PayoutVariableFixedIndexedBlockBlock
AnnuityAnnuityAnnuityAnnuitiesRILALifeAnnuity
March 31, 2023
Weighted-average crediting rate (1)
2.83 %2.94 %3.28 %1.90 %0.32 %5.76 %3.34 %
Net amount at risk (2)
$— $— $— $— $— $17,154 $— 
Cash surrender value (3)
$— $9,792 $10,981 $10,979 $2,314 $11,098 $1,316 
December 31, 2022
Weighted-average crediting rate (1)
2.39 %1.64 %3.33 %2.02 %0.11 %5.88 %3.64 %
Net amount at risk (2)
$— $— $— $— $— $17,427 $— 
Cash surrender value (3)
$— $10,101 $11,573 $11,409 $1,728 $7,096 $1,319 
(1) Weighted average crediting rate is comprisedthe average crediting rate weighted by contract holder account balances invested in fixed account funds.
(2) Net amount at risk represents the standard excess benefit base for guaranteed death benefits on universal life type products. The net amount at risk associated with market risk benefits are presented within Note 12 of the traditional guaranteed investment contracts, medium-term funding agreement-backed notesNotes to Consolidated Financial Statements.
(3) Cash surrender value represents the amount of the contract holder’s account balance distributable at the balance sheet date less the applicable surrender charges.

At both March 31, 2023 and funding agreements (including agreements issued in conjunction withDecember 31, 2022, excluding reinsurance business, approximately 92% of the Company’s participationannuity account values correspond to crediting rates that are at the minimum guaranteed interest rates. At March 31, 2023 and December 31, 2022, excluding reinsurance business, approximately 64% and 65% of the Company’s closed block life account values correspond to crediting rates that are at the minimum guaranteed interest rates, respectively.


69
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds
The following table presents contract holder account balances invested in fixed account funds by range of guaranteed minimum crediting rates and the U.S. Federal Home Loan Bank ("FHLB") program) described above.related range of the difference between rates being credited to other contract holder funds and the respective guaranteed minimums (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023
At Guaranteed1 Basis Point-5051 Basis Points-150Greater Than 150
Range of Guaranteed Minimum Crediting RateMinimumBasis Points AboveBasis Points AboveBasis Points AboveTotal
Variable Annuities
0.00%-1.50%$— $14 $1 $— $15 
1.51%-2.50%193 — — — 193 
Greater than 2.50%9,594 — — 125 9,719 
Total$9,787 $14 $1 $125 $9,927 
Fixed Annuities
0.00%-1.50%$18 $68 $82 $1 $169 
1.51%-2.50%31 2 2 — 35 
Greater than 2.50%629 58 315 — 1,002 
Total$678 $128 $399 $1 $1,206 
Fixed Indexed Annuities
0.00%-1.50%$6 $14 $5 $43 $68 
1.51%-2.50%— — — — — 
Greater than 2.50%23 — 22 — 45 
Total$29 $14 $27 $43 $113 
RILA
0.00%-1.50%$9 $— $4 $1 $14 
1.51%-2.50%$— $— $— $— — 
Greater than 2.50%11 — — — 11 
Total$20 $— $4 $1 $25 
Closed Block Life
0.00%-1.50%$— $— $— $— $— 
1.51%-2.50%— — — — — 
Greater than 2.50%4,532 1,886 626 14 7,058 
Total$4,532 $1,886 $626 $14 $7,058 
Closed Block Annuity
0.00%-1.50%$— $— $— $— $— 
1.51%-2.50%— — 1 12 13 
Greater than 2.50%903 218 24 — 1,145 
Total$903 $218 $25 $12 $1,158 

70
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds
December 31, 2022
At Guaranteed1 Basis Point-5051 Basis Points-150Greater Than 150
Range of Guaranteed Minimum Crediting RateMinimumBasis Points AboveBasis Points AboveBasis Points AboveTotal
Variable Annuities
0.00%-1.50%$6,679 $32 $2 $75 $6,788 
1.51%-2.50%200 — — — 200 
Greater than 2.50%3,271 — — — 3,271 
Total$10,150 $32 $2 $75 $10,259 
Fixed Annuities
0.00%-1.50%$19 $76 $95 $— $190 
1.51%-2.50%35 2 1 — 38 
Greater than 2.50%576 64 351 — 991 
Total$630 $142 $447 $— $1,219 
Fixed Indexed Annuities
0.00%-1.50%$6 $17 $5 $40 $68 
1.51%-2.50%— — — — — 
Greater than 2.50%24 — — — 24 
Total$30 $17 $5 $40 $92 
RILA
0.00%-1.50%$10 $— $7 $— $17 
1.51%-2.50%— — — — — 
Greater than 2.50%— — — — — 
Total$10 $— $7 $— $17 
Closed Block Life
0.00%-1.50%$— $— $— $— $— 
1.51%-2.50%— — — — — 
Greater than 2.50%4,566 1,868 619 14 7,067 
Total$4,566 $1,868 $619 $14 $7,067 
Closed Block Annuity
0.00%-1.50%$— $— $— $— $— 
1.51%-2.50%— — 1 10 11 
Greater than 2.50%980 159 21 — 1,160 
Total$980 $159 $22 $10 $1,171 













71
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 11.    Separate Account Assets and Liabilities

10.    Certain Nontraditional Long-Duration Contracts11.    Separate Account Assets and Variable Annuity GuaranteesLiabilities

This note contains the new accounting policy for the adoption of LDTI

The Company issues variable contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (“traditional(traditional variable annuities”)annuities). The Company also issues variable annuity and life contracts through separate accounts where the Company contractually guarantees to the contract holder (“variable(variable contracts with guarantees”)guarantees) either a) return of no less than total deposits made to the account adjusted for any partial withdrawals, b) total deposits made to the account adjusted for any partial withdrawals plus a minimum return, or c) the highest account value on a specified anniversary date adjusted for any withdrawals following the contract anniversary. These guarantees include benefits that are payable in the event of death (guaranteed minimum death benefits, or "GMDB"), at annuitization (GMIB)("GMIB"), upon the depletion of funds (GMWB)("GMWB") or at the end of a specified period (GMAB)("GMAB"). These guarantees are classified as market risk benefits. See Note 12 of the Notes to Condensed Consolidated Financial Statements for more information regarding market risk benefits.

The separate account assets supporting the variable portion of both traditional variable annuities and variable contracts with guarantees are carried at fair value and reported as summary total separate account assets with an equivalent summary total reported for separate account liabilities. Liabilities for guaranteed benefitsAt March 31, 2023 and December 31, 2022, the assets and liabilities associated with variable life and annuity contracts were $204 billion and $196 billion, respectively. Investment risks associated with market value changes are general account obligations and are reported in reserves for future policy benefits and claims payable. Amounts assessed againstborne by the contract holders, for mortality, administrative, and other services are reported in revenue as fee income. Changes in liabilities forexcept to the extent of minimum guarantees are reported within death, other policy benefits and change in policy reserves withinmade by the Condensed Consolidated Income Statements with the exception of changes in embedded derivatives, which are included in net gains (losses) on derivatives and investments. Company.

Separate account net investment income, net investment realized and unrealized gains and losses, and the related liability changes are offset within the same line item in the Condensed Consolidated Income Statements. Amounts assessed against the contract holders for mortality, variable annuity benefit guarantees, administrative, and other services are reported in revenue as fee income.

Included in the separate account assets and liabilities described above is a Jackson issued group variable annuity contract designed for use in connection with and issued to the Company’s Defined Contribution Retirement Plan. These deposits are allocated to the Jackson National Separate Account - II, which had balances of $304 million and $285 million at March 31, 2023 and December 31, 2022, respectively. The Company receives administrative fees for managing the funds. These fees are recorded as earned and included in fee income in the Condensed Consolidated Income Statements.

The following table presents the roll-forward of the separate account balance for variable annuities (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023December 31, 2022
Balance as of beginning of period$195,550$248,469
Deposits2,15812,288
Surrenders, withdrawals and benefits(3,791)(14,554)
Net transfer from (to) general account242(870)
Investment performance10,528(47,150)
Policy charges and other(697)(2,633)
Balance as of end of period, gross$203,990$195,550
Cash surrender value (1)
$198,782$190,243
(1) Cash surrender value represents the amount of the contract holder’s account balances distributable at the balance sheet date less applicable surrender charges.

72


Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 11.    Separate Account Assets and Liabilities
The following table presents the reconciliation of the separate account balance in the Condensed Consolidated Balance Sheets (in millions, 2022 information recast for the adoption of LDTI):

March 31, 2023December 31, 2022
Variable Annuities$203,990$195,550
Other376356
Total$204,366$195,906

The following table presents aggregate fair value of assets, by major investment asset category, supporting separate accounts (in millions, 2022 information recast for the adoption of LDTI):
March 31, 2023December 31, 2022
Variable Annuities By Fund Type
Equity$139,455 $132,547 
Bond19,553 19,155 
Balanced42,033 40,797 
Money Market2,949 3,051 
Total Variable Annuities203,990 195,550 
Other Product Lines376 356 
Total Separate Accounts$204,366 $195,906 


12.    Market Risk Benefits

This note contains the new accounting policy for the adoption of LDTI

Contracts or contract features that provide protection to the contract holder from capital market risk and expose the Company to other-than-nominal capital market risk are classified as MRBs.

All long-duration insurance contracts and certain investment contracts are subject to MRB evaluation. MRBs are measured at fair value at the contract level and can be in either an asset or liability position. For contracts that contain multiple MRB features, the MRBs are valued together as a single compound MRB. Market risk benefit assets and Market risk benefit liabilities are reported separately on the Condensed Consolidated Balance Sheets.

Changes in fair value are reported in Net (gains) losses on market risk benefits on the Condensed Consolidated Income Statements. However, the change in fair value related to our own non-performance risk is reported as a component of other comprehensive income in Change in non-performance risk on market risk benefits on the Condensed Consolidated Statements of Comprehensive Income (Loss).

A description of the items effecting the change in fair value by category is as follows:
•Changes in interest rates — movement in risk free rates (impacts both assumed future separate account returns and discounting of cash flows)
•Fund performance — separate account returns gross of fees
•Change in equity index volatility — movement in implied volatility
•Expected policyholder behavior — policyholder behavior as assumed in reserving
•Actual policyholder behavior different than expected — difference between actual behavior during the period versus assumed behavior
•Time — effect of passage of time including reduction to separate account balances from fees, the change in proximity of future cash flows, and impacts to policy features such as bonus credits
•Change in assumptions — changes in assumptions resulting from our periodic review
•Change in non-performance risk — changes in Jackson’s own credit spread

See Note 6 of the Notes to Condensed Consolidated Financial Statements for more information regarding fair value measurements.

73


Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 12.    Market Risk Benefits
Additionally, when an annuitization occurs (for annuitization benefits) or upon extinguishment of the account balance (for withdrawal benefits), the balance related to the MRB is derecognized and the amount deducted (after derecognition of any related amount included in accumulated other comprehensive income) is used in the calculation of the liability for future policy benefits for the resulting payout annuity.

Variable Annuities

Variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal, income and accumulation benefits. These guaranteed benefit features, as well as the reinsurance recoverable on the Company’s guaranteed minimum income benefits (“GMIB”), are classified as MRBs and measured at fair value. The Company discontinued offering the GMIB in 2009 and GMAB in 2011.

Variable annuity guaranteed benefit features classified as MRBs, which have explicit fees, are measured using the attributed fee method. Under the attributed fee method, fair value is measured as the difference between the present value of projected future liabilities and the present value of projected attributed fees. At the inception of the contract, the Company attributes to the MRB a portion of total fees expected to be assessed against the contract holder to offset the projected claims over the lifetime of the contract. The attributed fee is expressed as a percentage of total projected future fees at inception of the contract. This percentage of total projected fees is considered a fixed term of the MRB feature and is held static over the life of the contract. This percentage may not exceed 100% of the total projected contract fees as of contract inception. As the Company may issue contracts that have projected future liabilities greater than the projected future guaranteed benefit fees at issue, the Company may also attribute mortality and expense charges when performing this calculation. In subsequent valuations, both the present value of future projected liabilities and the present value of projected attributed fees are remeasured based on current market conditions and policyholder behavior assumptions.

Fixed Index Annuities

The longevity riders issued on fixed index annuities are classified as MRBs and measured at fair value. Similar to the variable annuity guaranteed benefits features, these contracts have explicit fees and are measured using the attributed fee method. The Company attributes a percentage of total projected future fees expected to be assessed against the policyholder to offset the projected future claims over the lifetime of the contract. If the fees attributed are insufficient to offset the claims at issue, the shortfall is borrowed from the host contract rather than recognizing a loss at inception.

RILA

RILA guaranteed benefit features are classified as MRBs and measured at fair value. Unlike variable or fixed index annuities, RILA products do not have explicit fees and are measured using an option-based method. The fair value measurement represents the present value of future claims payable by the MRB feature. At inception, the value of the MRB is deducted from the value of the contract resulting in no gain or loss.

The following table presents the reconciliation of the market risk benefits balance in the Condensed Consolidated Balance Sheets (in millions2022 information recast for the adoption of LDTI):

March 31, 2023December 31, 2022
VariableOtherVariableOther
AnnuitiesProduct LinesTotalAnnuitiesProduct LinesTotal
Market risk benefit - (assets)$(5,198)$(6)$(5,204)$(4,856)$(9)$(4,865)
Market risk benefit - liabilities5,516 44 5,560 5,623 39 5,662 
Market risk benefit - net liabilities$318 $38 $356 $767 $30 $797 


5774


At March 31, 2022 and December 31, 2021,Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 12.    Market Risk Benefits
The following table presents the Company provided variable annuity contracts with guarantees, for whichroll-forward of the net amount at(assets) liabilities of the market risk benefits for variable annuities (in millions, 2022 information recast for the adoption of LDTI):

Three Months Ended March 31, 2023Year Ended December 31, 2022
Net liability balance, beginning of period$767$6,281
Net liability beginning of period cumulative effect of changes in non-performance risk2,185326
Net liability balance, beginning of period, before effect of changes in non-performance risk2,9526,607
Effect of changes in interest rates1,824(14,137)
Effect of fund performance(1,881)6,432
Effect of changes in equity index volatility(747)1,576
Effect of expected policyholder behavior89532
Effect of actual policyholder behavior different from expected167(230)
Effect of time3801,707
Effect of changes in assumptions—465
Net liability balance, end of period, before effect of changes in non-performance risk2,7842,952
Net liability end of period cumulative effect of changes in non-performance risk(2,466)(2,185)
Net liability balance, end of period, gross318767
Reinsurance recoverable on market risk benefits at fair value, end of period(192)(183)
Net liability balance, end of period, net of reinsurance126584
Weighted average attained age (years) (1)
6969
Net amount at risk (2)
$12,459$15,592
(1) Weighted-average attained age is defined as the average age of policyholders weighted by account value.
(2) Net amount at risk (NAR) is defined as of guaranteedthe valuation date for each contract as the greater of Death Benefit NAR (DBNAR) and Living Benefit NAR (LBNAR), as applicable, where DBNAR is the GMDB benefit base in excess of currentthe account value, as follows (dollarsand the LBNAR is the actuarial present value of guaranteed living benefits in millions):excess of the account value.
Minimum ReturnAccount
 Value		Net Amount at RiskWeighted Average Attained AgeAverage Period until Expected Annuitization
March 31, 2022
Return of net deposits plus a minimum return
GMDB0-6%$179,752$3,14768.9 years
GMWB - Premium only0%2,67115
GMWB0-5%*2169
Highest specified anniversary account value
   minus withdrawals post-anniversary

GMDB13,57480370 years
GMWB - Highest anniversary only3,596173
GMWB1,01661
Combination net deposits plus minimum return,
   highest specified anniversary account value
   minus withdrawals post-anniversary

GMDB0-6%9,1261,09072 years
GMIB0-6%1,5105460.5 years
GMWB0-8%*167,95612,593
Weighted Average Attained AgeAverage Period until Expected Annuitization
Minimum ReturnAccount
 Value		Net Amount at Risk
December 31, 2021
Return of net deposits plus a minimum return
GMDB0-6%$194,060$2,12468.7 years
GMWB - Premium only0%2,9377
GMWB0-5%*2458
Highest specified anniversary account value
   minus withdrawals post-anniversary

GMDB14,8069369.8 years
GMWB - Highest anniversary only3,91933
GMWB64344
Combination net deposits plus minimum return,
   highest specified anniversary account value
   minus withdrawals post-anniversary
 
GMDB0-6%9,89652271.9 years
GMIB0-6%1,6624630.5 years
GMWB0-8%*181,4574,295
The significant assumptions used in the MRB fair value calculations are discussed in Note 6 of the Notes to Condensed Consolidated Financial Statements. The use of models and assumptions used to determine fair value of MRBs requires a significant amount of judgement. As such, we have undertaken a comprehensive review of the significant assumptions used.

* Ranges shown based on simple interest. During the three months ended March 31, 2023, the following notable changes were made to the inputs to the fair value estimates of the MRB calculations:
•There were no changes made to assumed mortality rates.
•There were no changes made to assumed lapse rates.
•There were no changes made to assumed GMWB or GMIB utilization rates.
•There were no changes made to assumed GMWB or non-GMWB withdrawal rates.
•The upper limitsnon-performance risk adjustment increased as a result of 5% or 8% simpleincreasing credit spreads, which resulted in a decrease in the MRB reserve that was recorded within OCI.
•There were no changes made to assumed long-term equity volatility.
•Decreases in interest are approximately equalrates led to 4.1%lower assumed separate account and 6.0%, respectively, on a compound interest basis over a typical 10-year bonus period. The combination GMWB category also includes benefits with a definedlower discount rates, which resulted in an increase in the withdrawal percentage under pre-defined non-market conditions.MRB reserve.
•Increases in equity markets led to higher separate account fund performance and a decrease in future projected benefits, which resulted in a decrease in the MRB reserve.
•Decreases in equity index volatility led to higher assumed separate account returns, which resulted in an increase in the MRB reserve.

5875


Amounts shown as GMWB above include a ‘not-for-life’ component upItem 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 12.    Market Risk Benefits
During the year ended December 31, 2022, the following notable changes were made to the point at whichinputs to the guaranteed withdrawal benefit is exhausted, after which benefits paid are considered to be ‘for-life’ benefits. The liability related to this ‘not-for-life’ portion is valued as an embedded derivative, while the ‘for-life’ benefits are valued as an insurance liability (see below). For this table, the net amount at riskfair value estimates of the ‘not-for-life’ component isMRB calculations:
•Assumed mortality rates for certain policies were increased as a result of trends in actual mortality experience within those blocks of business, which resulted in an increase in the undiscounted excessMRB reserve.
•Assumed lapse rates were reduced to capture recent trends in actual lapse experience and to reflect a strengthening of the guaranteed withdrawal benefit overrisk margin, which resulted in an increase in the account value,MRB reserve.
•An update was made in the GMWB utilization modeling framework to allow for more direct modeling of certain product features and thatrisk margins were strengthened to reflect the credibility associated with the increased granularity of the ‘for-life’ component isparameterization, which resulted in a net increase in the estimated valueMRB reserve. No adjustments were made to the GMIB utilization rates.
•Assumed GMWB withdrawal rates were increased as a result of additional life contingenttrends in actual experience, which resulted in an increase in the MRB reserve. Minor adjustments were made to the free partial withdrawal rates on policies without a GMWB with no material impact on the resulting MRB reserve.
•The non-performance risk adjustment increased as a result of increasing credit spreads, which resulted in a decrease in the MRB reserve that was recorded within OCI.
•There were no changes made to assumed long-term equity volatility.
•Increases in interest rates led to higher assumed separate account returns and higher discount rates, which resulted in a decrease in the MRB reserve.
•Decreases in equity markets led to lower separate account fund performance and an increase in future projected benefits, paid afterwhich resulted in an increase in the guaranteed withdrawal benefit is exhausted.MRB reserve.
•Increases in equity index volatility led to lower assumed separate account returns, which resulted in an increase in the MRB reserve.

Account balances
13.    Long-Term Debt

Liabilities for the Company’s debt are primarily carried at an amount equal to the principal balance net of contracts with guarantees were invested in variable separate accountsany unamortized original issuance discount or premium. Original issuance discount or premium and any debt issue costs, if applicable, are recognized as a component of interest expense over the period the debt is expected to be outstanding.

The aggregate carrying value of long-term debt was as follows (in millions):

March 31,December 31,
20222021
Fund type:
Equity$142,087 $154,368 
Bond18,803 20,207 
Balanced40,466 43,185 
Money market1,886 1,564 
Total$203,242 $219,324 
GMDB liabilities reflected in the general account were as follows (in millions):

Three Months Ended March 31,
20222021
Balance as of beginning of period$1,370 $1,418 
Incurred guaranteed benefits255 44 
Paid guaranteed benefits(36)(32)
Balance as of end of period$1,589 $1,430 

The GMDB liability is determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the liability balance through the Condensed Consolidated Income Statements, within death, other policy benefits and change in policy reserves, if actual experience or other evidence suggests that earlier assumptions should be revised.

The following assumptions and methodology were used to determine the GMDB liability at both March 31, 2022 and December 31, 2021 (except where otherwise noted):

•Use of a series of stochastic investment performance scenarios, based on historical average market volatility.
•Mean investment performance assumption of 7.15%, after investment management fees, but before external investment advisory fees and mortality and expense charges.
•Mortality equal to 38% to 100% of the 2012 Individual Annuity Mortality ("IAM") basic table improved using Scale G2 through 2020.
•Lapse rates varying by contract type, duration and degree the benefit is in-the-money and ranging from 0.3% to 27.9% (before application of dynamic adjustments).
•Discount rates: 7.15% on 2020 and later issues, 7.4% on 2013 through 2019 issues, 8.4% on 2012 and prior issues.

Most GMWB reserves are considered to be derivatives under current accounting guidance and are recognized at fair value, as previously defined, with the change in fair value reported in net income (as net gains (losses) on derivatives and investments). The fair value of these liabilities is determined using stochastic modeling and inputs as further described in Note 6. The fair valued GMWB had a reserve liability of $452 million and $2,626 million at March 31, 2022 and December 31, 2021, respectively, and was reported in reserves for future policy benefits and claims payable.
March 31,December 31,
20232022
Long-Term Debt
Senior Notes due 2023$598 $598 
Senior Notes due 2027397 397 
Senior Notes due 2031493 493 
Senior Notes due 2032347 347 
Senior Notes due 2051489 488 
Surplus notes250 250 
FHLBI bank loans58 62 
Total long-term debt$2,632 $2,635 

5976

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 13.    Long-Term Debt
The Company has also issued certain GMWB products that guarantee payments over a lifetime. Reserves forfollowing table presents the portioncontractual maturities of these benefits after the point where the guaranteed withdrawal balance is exhausted are calculated using assumptions and methodology similar to the GMDB liability. AtCompany's long-term debt as of March 31, 2022 and December 31, 2021, these GMWB reserves totaled $223 million and $196 million, respectively, and were reported in reserves for future policy benefits and claims payable.2023 (in millions):
Calendar Year
20232024202520262027 and thereafterTotal
Long-term debt$598 $— $— $— $2,034 $2,632 

GMAB benefits were offered on some variable annuity products. However, the Company no longer offers these benefits and all have expired as of June 30, 2021.Senior Notes

On June 8, 2022, the Company issued $750 million aggregate principal amount of its senior unsecured notes, consisting of $400 million aggregate principal amount of 5.170% Senior Notes due June 8, 2027 and $350 million aggregate principal amount of 5.670% Senior Notes due June 8, 2032. The direct GMIB liability is determined at each period end by estimatingnet proceeds of these notes were used, together with cash on hand, to repay the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating the direct GMIB liability are consistent with those used for calculating the GMDB liability. At March 31, 2022 and December 31, 2021, GMIB reserves before reinsurance totaled $97Company’s $750 million and $78 million, respectively.aggregate principal senior unsecured amount term loan due February 2023.

Other Liabilities – Insurance and Annuitization BenefitsRevolving Credit Facility

On February 24, 2023, the Company replaced the 2021 Revolving Credit Facility that was due to expire in February 2024 and entered into a revolving credit facility (the "2023 Revolving Credit Facility") with a syndicate of banks and Bank of America, N.A., as Administrative Agent. The Company has established additional reserves2023 Revolving Credit Facility provides for life insurance businessborrowings for universal life plansworking capital and other general corporate purposes under aggregate commitments of $1.0 billion, with secondary guarantees, interest-sensitive life plans that exhibit “profits followed by loss” patterns and account balance adjustments to tabular guaranteed cash values on one interest-sensitive life plan.

Liabilitiesa sub-limit of $500 million available for these benefits, as established according to the methodologies described below, are as follows:

March 31, 2022December 31, 2021
Benefit TypeLiability
(in millions)		Net Amount
at Risk
(in millions)		Weighted Average Attained AgeLiability
(in millions)		Net Amount
at Risk
(in millions)		Weighted Average Attained Age
Insurance benefits *$942 $18,203 64.4 years$943 $18,506 64.0 years
Account balance adjustments141 N/AN/A141 N/AN/A
*    Amountsletters of credit. The 2023 Revolving Credit Facility further provides for the universal life benefits are for the total of the plans containing any policies having projected non-zero excess benefits,ability to request, subject to customary terms and thus may include some policies with zero projected excess benefits.

The following assumptions and methodology were usedconditions, an increase in commitments thereunder by up to determine the universal life insurance benefit liability for the periods referenced in the table above:an additional $500 million.

•The credit agreement for the 2023 Revolving UseCredit Facility contains financial maintenance covenants, including a minimum adjusted consolidated net worth test of no less than 70% of our adjusted consolidated net worth as of September 30, 2022 (plus (to the extent positive) or minus (to the extent negative) 70% of the impact on such adjusted consolidated net worth resulting from the application of a seriesone-time transition adjustment for the LDTI accounting change for insurance contracts, and plus 50% of deterministic premium persistency scenarios.
•Other experience assumptions similarthe aggregate amount of any increase in adjusted consolidated net worth resulting from equity issuances by the Company and its consolidated subsidiaries after September 30, 2022), and a maximum consolidated indebtedness to those used in amortization of deferred acquisition costs.
•Discount rates equaltotal capitalization ratio test not to credited interest rates, approximately 3.0% to 5.5% at both March 31, 2022 and December 31, 2021.

The Company also has a small closed block of two-tier annuities, where different crediting rates are used for annuitization and surrender benefit calculations. A liability is established to cover future annuitization benefits in excess of surrender values and was immaterial toexceed 35%. Commitments under the Condensed Consolidated Financial Statements at both March 31, 2022 and December 31, 2021, respectively. The Company also offers an optional lifetime income rider with certain of its fixed index annuities. The liability established for this rider before reinsurance was $41 million and $37 million at March 31, 2022 and December 31, 2021, respectively.

2023 Revolving Credit Facility terminate on February 24, 2028.
60


11.14. Federal Home Loan Bank Advances

The Company, through its subsidiary, Jackson, entered into an advance program with the FHLBI in which interest rates were either fixed or variable based on the FHLBI cost of funds or market rates. Advances of $500 million and nil were outstanding at both March 31, 20222023 and December 31, 2021, respectively,2022 and were recorded in other liabilities.

12.15.     Income Taxes

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA includes a new Federal alternative minimum tax (“AMT”), effective in 2023, that is based on 15% of an applicable corporation’s adjusted financial statement income (“AFSI”). A corporation will be subject to the AMT if its average pre-tax AFSI over three prior years (starting with 2020-2022) is greater than $1 billion (an “applicable corporation”). Upon becoming an applicable corporation, an entity will remain so for all future years, except under limited circumstances. The corporation’s AMT liability is payable to the extent the AMT liability exceeds regular corporate income tax. However, any AMT paid would be indefinitely available as a credit carryover that could reduce future regular corporate income tax in excess of AMT. Starting in 2023, the Company became an applicable corporation. That determination is based on interpretations and assumptions we have made regarding the AMT provisions of the IRA, which may change once regulatory guidance is issued. As of March 31, 2023, we have not recorded any provision for the AMT. The U.S. Department of the Treasury is expected to issue regulatory guidance throughout 2023.

77
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 15.     Income Taxes
The Company uses the estimated annual effective tax rate (“ETR”) method in computing the interim tax provision. Certain items, including those deemed unusual, infrequent, or that cannot be reliably estimated, are treated as discrete items and excluded from the estimated annual ETR. In these cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual ETR, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions and are recorded in the period in which the change occurs. The estimated annual ETR is revised, as necessary, at the end of successive interim reporting periods.

The Company’s effective income tax rate was 14.0%27.2% for the three months ended March 31, 2022,2023, compared with 16.7%15.0% for the same period in 2021.2022. The effective tax rateETR differs from the statutory rate of 21% primarily due to the dividends received deduction and utilization of foreign tax credits. The effective tax rate differschange in the ETR for the three months ended March 31, 2022 and2023 compared to the three months ended March 31, 20212022 was due to the relationship of taxable income to consolidated pre-tax income. The effective tax rateETR differs for the three months ended March 31, 20222023 from the full year-ended December 31, 2021 effective tax rate2022 ETR of 15.9%19.6% due to the relationship of taxable income to consolidated pre-tax income.

The Company is required to evaluate the recoverability of its deferred tax assets and establish a valuation allowance, if necessary, to reduce its deferred tax asset to an amount that is more likely than not to be realizable. Considerable judgment and the use of estimates are required when determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. When evaluating the need for a valuation allowance, the Company considers many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of temporary differences; the provision-to-return adjustmentslength of time carryovers can be utilized; and any tax planning strategies the Company would employ to avoid a tax benefit from expiring unused.

For the three months ended March 31, 2023, recent changes in market conditions and interest rates, impacted the unrealized tax gains and losses in the available for sale securities portfolio resulting in deferred tax assets related to net unrealized tax capital losses. The deferred tax asset relates to the unrealized losses for which the carryforward period has not yet begun, and as such, when assessing its recoverability, we consider our ability and intent to hold the underlying securities to recovery.

As of March 31, 2023, based on all available evidence, we concluded that a valuation allowance should be established on a portion of the deferred tax asset related to unrealized losses that are not more-likely-than-not to be realized. For the three months ended March 31, 2023, the Company recorded a decrease of $136 million to the valuation allowance associated with the unrealized tax losses in the companies’ available for sale securities portfolio. The $136 million decrease to the valuation allowance consists of $141 million tax benefit recorded to other comprehensive income offset by a $5 million tax expense recorded in 2021the income tax (benefit). At March 31, 2023 and December 31, 2022, the net interest related to income taxesCompany has recorded a total valuation allowance for $770 million and $906 million, respectively, associated with the unrealized tax losses in 2021.the companies' available for sale securities portfolio. At March 31, 2023 and December 31, 2022, the Company has recorded a total valuation allowance for $4 million and $4 million, respectively, against the deferred tax assets associated with both realized and unrealized losses on capital assets in the Non-life Companies’ where it is not more-likely-than-not that the full tax benefit of the losses will be realized.

13.16. Commitments and Contingencies

The Company and its subsidiaries are involved in litigation arising in the ordinary course of business. It is the opinion of management that the ultimate disposition of such litigation will not have a material adverse effect on the Company's financial condition. Jackson has been named in civil litigation proceedings, which appear to be substantially similar to other class action litigation brought against many life insurers including allegations of misconduct in the sale of insurance products. The Company accrues for legal contingencies once the contingency is deemed to be probable and reasonably estimable.

At March 31, 2022,2023, the Company had unfunded commitments related to its investments in limited partnerships and limited liability companies totaling $1,807$1,283 million. At March 31, 2022,2023, unfunded commitments related to fixed-rate mortgage loans and other debt securities totaled $1,956$1,342 million.

78
14.
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 17. Other Related Party Transactions
17. Other Related Party Transactions

The Company's investment management operation, PPM, provides investment services to certain Prudential affiliated entities. The Company recognized $9$8 million and $10$9 million of revenue during the three months ended March 31, 2022,2023 and 2021,2022, associated with these investment services. This revenue was included in fee income in the accompanying Condensed Consolidated Income Statements.
The investments in the segregated account related to the coinsurance agreement with Athene are subject to an investment management agreement between Jackson and Apollo Insurance Solutions Group LP (“Apollo”), which merged with Athene in 2022. Apollo management fees, which are calculated and paid monthly in arrears, are paid directly from the funds withheld account, administered by Athene. These payments were $22 million and $28 million during the three months ended March 31, 2022, and 2021, associated with these services.
61


15.18. Operating Costs and Other Expenses
        
The following table is a summary of the Company’s operating costs and other expenses (in millions):

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Asset-based commission expensesAsset-based commission expenses$275 $267 Asset-based commission expenses$250 $275 
Other commission expensesOther commission expenses240 266 Other commission expenses174 240 
Sub-advisor expensesSub-advisor expenses77 90 
General and administrative expensesGeneral and administrative expenses271 264 General and administrative expenses236 241 
Deferral of acquisition costsDeferral of acquisition costs(179)(199)Deferral of acquisition costs(121)(180)
Total operating costs and other expenses Total operating costs and other expenses$607 $598  Total operating costs and other expenses$616 $666 

16.19. Accumulated Other Comprehensive Income (Loss)
    
The following table represents changes in the balance of AOCI, net of income tax, related to unrealized investment gains (losses) (in millions)millions, 2022 information recast for the adoption of LDTI):

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Balance, beginning of period (1)
Balance, beginning of period (1)
$1,744 $3,821 
Balance, beginning of period (1)
$(3,378)$1,360 
Change in unrealized appreciation (depreciation) of investments(3,581)(3,092)
Change in unrealized appreciation (depreciation) - other171 155 
Change in unrealized gains (losses) of investmentsChange in unrealized gains (losses) of investments1,027 (3,581)
Change in current discount rate - reserve for future policy benefits(2)
Change in current discount rate - reserve for future policy benefits(2)
(146)765 
Change in non-performance risk on market risk benefitsChange in non-performance risk on market risk benefits284 936 
Change in unrealized gains (losses) - otherChange in unrealized gains (losses) - other(14)9 
Change in deferred tax assetChange in deferred tax asset738 636 Change in deferred tax asset(110)402 
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications(2,672)(2,301)Other comprehensive income (loss) before reclassifications1,041 (1,469)
Reclassifications from AOCI, net of taxReclassifications from AOCI, net of tax(11)(77)Reclassifications from AOCI, net of tax29 (10)
Other comprehensive income (loss)Other comprehensive income (loss)(2,683)(2,378)Other comprehensive income (loss)1,070 (1,479)
Balance, end of period (1)
Balance, end of period (1)
$(939)$1,443 
Balance, end of period (1)
$(2,308)$(119)
(1)Includes $(686)$(1,832) million and $287$(2,106) million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of March 31, 20222023 and December 31, 2021,2022, respectively.
(2)Represents the impact of changes in the discount rate used in the remeasurement of our direct reserves for future policy benefits and claims payable, net of the remeasurement of ceded reserves for future policy benefits and claims payable.

79
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 19. Accumulated Other Comprehensive Income (Loss)
The following table represents amounts reclassified out of AOCI (in millions)millions, 2022 information recast for the adoption of LDTI):

AOCI ComponentsAmounts
Reclassified from AOCI		Affected Line Item in the Condensed
Consolidated Income Statement
Three Months Ended March 31,
20222021
Net unrealized investment gain (loss):
Net realized gain (loss) on investments$(31)$(102)Net gains (losses) on derivatives and investments
Other impaired securities18 — Net gains (losses) on derivatives and investments
Net unrealized gain (loss)(13)(102)
Amortization of deferred acquisition costs(2)5 
Reclassifications, before income taxes(15)(97)
Income tax expense (benefit)(4)(20)
Reclassifications, net of income taxes$(11)$(77)

62

AOCI ComponentsAmounts
Reclassified from AOCI		Affected Line Item in the Condensed
Consolidated Income Statement
Three Months Ended March 31,
20232022
Net unrealized investment gain (loss):
Net realized gain (loss) on investments$60 $(31)Net gains (losses) on derivatives and investments
Other impaired securities(23)18 Net gains (losses) on derivatives and investments
Net unrealized gain (loss)37 (13)
Amortization of deferred acquisition costs— — 
Reclassifications, before income taxes37 (13)
Income tax expense (benefit)8 (3)
Reclassifications, net of income taxes$29 $(10)

17.20. Equity

Preferred Stock

On March 13, 2023, the Company issued and sold 22,000,000 depositary shares (the “Depositary Shares”), each representing a 1/1,000th fractional interest in a share of the Company’s Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A, $25,000 liquidation preference per share (equivalent to $25 per Depositary Share), with a 5-year dividend rate reset period and noncumulative dividends (the “Series A Preferred Stock”). After underwriting discounts and expenses, we received net proceeds of approximately $533 million.

The Series A Preferred Stock carries i) an initial dividend rate of 8.000% per annum to but excluding, March 30, 2028; ii) from, and including, March 30, 2028, during each reset period, at a rate per annum equal to the Five-year U.S. Treasury Rate as of the applicable reset dividend determination date plus 3.728% and be payable in arrears on March 30, June 30, September 30 and December 30, commencing on June 30, 2023. Dividends on the Series A Preferred Stock are not cumulative. Under the terms of the Series A Preferred Stock, if the Company has not declared and paid, or declared and set aside a sum sufficient for the payment of, dividends on the Series A Preferred Stock for the immediately preceding dividend period (for the avoidance of doubt, there is no preceding dividend period for the initial dividend period), then the Company’s ability to pay dividends or make distributions with respect to its common stock, or to repurchase or otherwise acquire its common stock, is subject to certain restrictions. Similar restrictions would apply in respect of any preferred stock ranking on parity with, or junior to, the Series A Preferred Stock, if any such preferred stock were to be issued by the Company.

We may, at our option, redeem the shares of Series A Preferred Stock (a) in whole but not in part at any time prior to March 30, 2028, (i) within 90 days after the occurrence of a “rating agency event” at a redemption price equal to $25,500 per share (equivalent to $25.50 per Depositary Share), plus an amount equal to any accrued but unpaid dividends to, but excluding, the redemption date, or (ii) within 90 days after the occurrence of a “regulatory capital event,” at a redemption price equal to $25,000 per share (equivalent to $25 per Depositary Share), plus an amount equal to any accrued but unpaid dividends to, but excluding, the redemption date, or (b) in whole or in part, from time to time, on or after March 30, 2028, at a redemption price equal to $25,000 per share (equivalent to $25 per Depositary Share), plus an amount equal to any accrued but unpaid dividends to, but excluding, the redemption date. If we redeem any shares of Series A Preferred Stock, a proportionate number of Depositary Shares will be redeemed. Holders of Depositary Shares have no right to require the redemption or repurchase of the Series A Preferred Stock or the Depositary Shares.

We will use the net proceeds from the sale for general corporate purposes, including future repayments of debt.
80
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 20. Equity

Common Stock

TheAt the time of the Demerger, the Company has 2had two classes of common stock: Class A Common Stock and Class B Common Stock. Both classes havehad a par value of $0.01 per share. Each share of Class A Common Stock iswas entitled to 1one vote per share. Each share of Class B Common Stock iswas entitled to one-tenth of one vote per share. Except for voting rights, the Company’s Class A Common Stock and Class B Common Stock havehad the same dividend rights, arewere equal in all other respects, and arewere otherwise treated as if they were one class of shares. On June 9, 2022, our shareholders approved the Third Amended and Restated Certificate of Incorporation, which amended and restated the Second Amended and Restated Certificate of Incorporation to eliminate the Class B Common Stock. At March 31, 20222023 and December 31, 2021,2022, the Company was authorized to issue up to 900 million1 billion shares of common stock (formerly known as the Class A Common Stock and 100 million shares of Class B Common Stock.at December 31, 2021).

Share RepurchasesRepurchase Program

On February 28, 2022,27, 2023, our Board of Directors authorized an increase of $300$450 million in our existing shareauthorization to repurchase authorizationshares of JFI'sour outstanding Class A Common Stock.Stock as part of the Company's share repurchase program. As of May 4, 2022,3, 2023, the Company had remaining authorityauthorization to purchase $230$457 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company's capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time. It does not have an expiration date. There can be no assurance that we will continue share repurchases or approve any increase to, or approve any new, stock repurchase program, or as to the amount of any repurchases made pursuant to such programs.

The Inflation Reduction Act of 2022 creates a 1% excise tax on net stock buybacks of publicly-traded U.S. corporations. Starting in 2023, such excise tax generally applies if a company repurchases in excess of $1 million worth of its stock in any given calendar year. The impact of this provision is dependent on the extent of net share repurchases made. Any excise tax incurred on corporate stock repurchases will generally be recognized as part of the cost basis of the treasury stock acquired and not reported as income tax expense. Through March 31, 2023, we have not incurred any excise tax as stock issuances were greater than stock repurchases.

The following table represents share repurchase activities:activities as part of this share repurchase program:

PeriodNumber of Shares RepurchasedTotal Payments
 (in millions)		Average Price Paid Per Share
2021(October 1 - December 31)5,778,649 $211 $36.51 
Total 20215,778,649 211 36.51 
2022 (January 1- March 31)3,433,610 140 40.84 
2022 (April 1- May 4)433,299 19 43.37 
Total 20223,866,909 $159 $41.12 

PeriodNumber of Shares RepurchasedTotal Payments
 (in millions)		Average Price Paid Per Share
2022 (January 1- March 31)3,433,610 $140 $40.84 
2022 (April 1- June 30)1,870,854 66 35.15 
2022 (July 1- September 30)1,200,000 39 32.75 
2022 (October 1 - December 31)1,142,105 38 33.33 
Total 20227,646,569 $283 $37.05 
2023 (January 1- March 31)1,721,737 70 40.42 
2023 (April 1- May 3)804,797 29 35.87 
Total 20232,526,534 $99 $38.97 

The following table represents changes in the balance of common sharesstock outstanding:
Common StockTreasury StockTotal Common Stock Outstanding
Shares outstanding at December 31, 202194,464,343 (5,778,649)88,685,694 
Share-based compensation programs (1)
2,706 8,818 11,524 
Shares repurchased under repurchase program— (3,433,610)(3,433,610)
Shares outstanding at March 31, 202294,467,049 (9,203,441)85,263,608 

Common Stock IssuedTreasury StockTotal Common Stock Outstanding
Shares at December 31, 202294,474,911 (11,784,813)82,690,098 
Share-based compensation programs921 75,036 (1)75,957 
Shares repurchased under repurchase program— (1,721,737)(1,721,737)
Shares at March 31, 202394,475,832 (13,431,514)81,044,318 
(1) Represents net shares issued from treasury stock pursuant to the Company’s share-based compensation programs.

On December 13, 2021, we repurchased 2,242,516 shares of our Class A Common Stock from Prudential and 1,134,767 shares of our Class A Common Stock from Athene. The price per share in the repurchase was $37.01. On December 13, 2021, Athene converted a total of 725,623 shares of its Class B common stock to Class A Common Stock on a one-for-one basis. On February 1, 2022, Athene converted the remaining 638,861 shares of its Class B Common Stock to Class A Common Stock on a one-for-one basis.

On March 12, 2022, we repurchased 750,000 shares of our Class A Common Stock from Athene. The price per share in the repurchase was $37.89.


6381

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 20. Equity
Dividends to Shareholders

Any declaration of cash dividends will be at the discretion of JFI’s Board of Directors and will depend on our financial condition, earnings, liquidity and capital requirements, regulatory constraints, level of indebtedness, contractual restrictions with respect to paying cash dividends, restrictions imposed by Delaware law, general business conditions and any other factors that JFI’s Board of Directors deems relevant in making any such determination. Therefore, there can be no assurance that we will pay any cash dividends to holders of our common stock or approve any stock repurchase program, or as to the amount of any such cash dividends or stock repurchases.dividend.

The following table presents declaration date, record date, payment date and dividends paid on per share of JFI’s Class A and Class B common shares:stock:

Three Months EndedDeclaration DateRecord DatePayment DateDividends Paid Per Share
Quarter Ended
03/31/2023February 27, 2023March 14, 2023March 23, 2023$0.62
Quarter Ended
03/31/2022February 28, 2022March 14, 2022March 23, 2022$0.55
03/31/2021N/AN/AN/AN/A


18.21. Earnings Per Share

Basic earnings per share is calculated by dividing net income (loss) attributable to Jackson Financial Inc. shareholders by the weighted-average number of Class A and Class B common shares outstanding during the period. Except for voting rights, the Company’s Class A Common Stock and Class B Common Stock havehad the same dividend rights, arewere equal in all respects, and arewere otherwise treated as if they were one class of shares, including the treatment for the earnings per share calculations. Diluted earnings per share is calculated by dividing the net income (loss) attributable to Jackson Financial Inc. shareholders, by the weighted-average number of shares of Class A Common Stock and Class B Common Stockcommon stock outstanding for the period, plus shares representing the dilutive effect of share-based awards. For the three months ended March 31,Beginning in 2021, the Company did not have any outstanding share-based awards involving the issuance of the Company’s equity and, therefore, no impact to the diluted earnings per share calculation. The Company grantsgranted its first share-based awards subject to vesting provisions as provided inof the Company's 2021 Omnibus Incentive Plan, which have a dilutive effect. See Note 1618 to Consolidated Financial Statements for further description of share-based awards in the Company's 2022 Annual Report on Form 10-K for year ended December 31, 2021.Report.

The following table sets forth the calculation of earnings per common share:share (2022 information recast for the adoption of LDTI):

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
(in millions, except share and per share data)(in millions, except share and per share data)
Net income (loss) attributable to Jackson Financial Inc.Net income (loss) attributable to Jackson Financial Inc.$2,025 $2,932 Net income (loss) attributable to Jackson Financial Inc.$(1,497)$2,194 
Weighted average shares of common stock outstanding - basicWeighted average shares of common stock outstanding - basic86,352,586 94,464,343 Weighted average shares of common stock outstanding - basic82,646,113 86,352,586 
Dilutive common sharesDilutive common shares3,607,276 — Dilutive common shares— 3,607,276 
Weighted average shares of common stock outstanding - diluted(1)Weighted average shares of common stock outstanding - diluted(1)89,959,862 94,464,343 Weighted average shares of common stock outstanding - diluted(1)82,646,113 89,959,862 
Earnings per share—common stockEarnings per share—common stockEarnings per share—common stock
BasicBasic$23.45 $31.03 Basic$(18.11)$25.41 
DilutedDiluted$22.51 $31.03 Diluted$(18.11)$24.39 
(1) If we reported a net loss attributable to Jackson Financial Inc., all common stock equivalents are anti-dilutive and are therefore excluded from the calculation of diluted shares and diluted per share amounts. The shares excluded from the diluted EPS calculation were 3,436,857 shares for the three months ended March 31, 2023.



6482
Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 22.    Revision and Reclassifications of Prior Period Financial Statements
22.    Revision and Reclassifications of Prior Period Financial Statements

At September 30, 2022, the Company identified errors related to the classification of certain balances and amounts in line items of Condensed Consolidated Income Statements, and Condensed Consolidated Statements of Cash Flows of its previously issued Condensed Consolidated Financial Statements. These errors consist of balances and amounts related to deferred sales inducement assets, liabilities for certain life-contingent annuities, sub-advisor fee expenses, and other operating expenses and do not impact previously reported net income, total equity, or net cash flows.

Management evaluated these errors and the impact to previously issued financial statements based upon SEC Staff Accounting Bulletin No. 99, Materiality, which has since been codified in Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections. Based on this evaluation, management has concluded that the adjustments and impact of these errors were not material to any previously issued quarterly or annual financial statements. However, to improve the consistency and comparability of the financial statements, management has revised previously reported financial statement line items and related disclosures in this report.

In addition, certain other immaterial amounts in prior period financial statements have been reclassified to conform to the current period presentation.

The following tables, recast for the adoption of LDTI, present condensed statement of income line items affected by the revisions and reclassifications of previously reported financial statements, detailing amounts previously reported, the impact upon those line items due to revisions and reclassifications and amounts as currently revised within the financial statements. For the three months ended March 31, 2022, the reclassification also impacted the Condensed Consolidated Statement of Cash Flows in the amount of $27 million, which increased financing cash flows offset by a decrease in operating cash flows.

Condensed Consolidated Income Statements
 (in millions)		As Previously ReportedImpact for the Adoption of LDTIImpact of Revisions
and Reclassifications		As Revised
Three Months EndedThree Months EndedThree Months EndedThree Months Ended
3/31/223/31/223/31/223/31/22
Revenues
Fee income$1,922 $— $90 $2,012 
Premium34 — 3 37 
Net investment income720 — (30)690 
Total net gains (losses) on derivatives and investments1,605 (2,143)— (538)
Total revenues4,301 (2,143)63 2,221 
Benefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferrals567 (281)14 300 
(Gain) loss from updating future policy benefits cash flow assumptions, net— 15 — 15 
Market risk benefits (gains) losses, net— (1,907)— (1,907)
Interest credited on other contract holder funds, net of deferrals and amortization206 1 (10)197 
Operating costs and other expenses, net of deferrals607 — 59 666 
Amortization of deferred acquisition costs515 (198)— 317 
Total benefits and expenses1,915 (2,370)63 (392)
Pretax income (loss)2,386 227 — 2,613 
Income tax (benefit) expense330 58 — 388 
Net income (loss)$2,056 $169 $— $2,225 

83

Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 23.    Subsequent Events

19.23.    Subsequent Events

The Company has evaluated subsequent events through the date these Condensed Consolidated Financial Statements were issued.

Line of Credit Agreement

Jackson is a party to an Uncommitted Money Market Line Credit Agreement dated April 6, 2023 among Jackson, Jackson Financial, and Société Générale. This agreement is an uncommitted short-term cash advance facility that provides an additional form of liquidity to Jackson and to Jackson Financial. The aggregate borrowing capacity under the agreement is $500 million and each cash advance request must be at least $100 thousand. The interest rate is set by the lender at the time of the borrowing and is fixed for the duration of the advance. Jackson and Jackson Financial are jointly and severally liable to repay any advance under the agreement, which must be repaid prior to the last day of the quarter in which the advance was drawn. As of May 9, the Company has not borrowed on this line of credit.

Dividends Declared to Shareholders

On May 9, 2022,8, 2023, our Board of Directors approved a second quarter cash dividend on JFI's Class A Common Stock of $0.55common stock, $0.62 per share, payable on June 16, 202215, 2023, to shareholders of record on June 2, 2022.

1, 2023. The Company also announced the declaration of a cash dividend of $0.59444 per depositary share, each representing a 1/1,000th interest in a share of Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A. The dividend will be payable on June 30, 2023, to shareholders of record at the close of business on June 1, 2023.



6584


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

Certain statements madeThe information in this reportQuarterly Report on 10-Q (this “report”) contains forward-looking statements about future events and circumstances and their effects upon revenues, expenses and business opportunities. Generally speaking, any statement in this Form 10-Q not based upon historical fact is a forward-looking statement. Forward-looking statements can also be identified by the use of forward-looking or conditional words, such as “could,” “should,” “can,” “continue,” “estimate,” “forecast,” “intend,” “look,” “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain,” “confident” and “commit” or similar expressions. In particular, statements regarding plans, strategies, prospects, targets and expectations regarding the business and industry are “forward-looking statements” within the meaningforward-looking statements. They reflect expectations, are not guarantees of performance and speak only as of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). Adates the statements are made. We caution investors that these forward-looking statement is a statement that is not a historical fact and includes any statement that may predict, forecast, indicate or imply future results, performance or achievements. Forward-looking statements may contain words like: “anticipate,” “believe,” “estimate,” “expect,” “project,” “shall,” “will” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results and the outcome of contingencies, such as legal proceedings.

Forward-looking statements are subject to known and unknown risks and uncertainties. Actualuncertainties that may cause actual results couldto differ materially from those projected, expressed, or implied. Factors that could cause actual results to differ materially from those in or implied by suchthe forward-looking statements due to a varietyinclude those reflected in Part I, Item 1A. Risk Factors and Part II, Item 7. Management's Discussion and Analysis of factors, including:

•    conditionsFinancial Condition and Results of Operations in the capital and credit markets and the economy which impact liquidity, investment performance and valuation, hedge program performance, interest rates and credit spreads;
•    Jackson Financial’s dependence on the ability of its subsidiaries to transfer funds to meet Jackson Financial’s obligations and liquidity needs;
•    downgrade in our financial strength or credit ratings, which impact our business and costs of financing;
•    changes in laws and regulations, which impact how we conduct our business, the relative appeal of our products versus those from other financial institutions, and changes in accounting standards, which impact how we account for and present our results of operations;
•    operational failures, including failure of our information technology systems, failure to protect the confidentiality of customer information or proprietary business information, and disruptions from third-party outsourcing partners;
•    a failure to adequately describe and administer, or meet any of the complex product and regulatory requirements relating to, the many complex features and options contained in our annuities;
•adverse impacts on our results of operations and capitalization as a result of optional guaranteed benefits within certain of our annuities;
•models that rely on a number of estimates, assumptions, sensitivities and projections, which models inform our business decisions and strategy, and which may contain misjudgments and errors and may not be as predictive as desired;
•    risks related to natural and man-made disasters and catastrophes, diseases, epidemics, pandemics (including COVID-19), malicious acts, cyberattacks, terrorist acts, civil unrest and climate change;
•    inadequate reserves due to differences between our actual experience and management’s estimates and assumptions;
•    changes in the levels of amortization of deferred acquisition costs (“DAC”); and
•    adverse outcomes of legal or regulatory actions.

The risks and uncertainties included here are not exhaustive. Our Annual Report on Form 10-K for the year ended December 31, 2021,2022, as filed with the SEC on March 7, 2022,1, 2023, (the "2021"2022 Annual Report") and other reports filedelsewhere in Jackson Financial Inc.’s filings with the United StatesU.S. Securities and Exchange Commission (“SEC”(the "SEC") includes additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time. Except as required by law, Jackson Financial Inc. does not undertake to time, and it isupdate such forward-looking statements. You should not possible for management to predict all such risk factors. rely unduly on forward-looking statements.

Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report, except as otherwise required by law.
6685

Item 2 | Management’s Discussion and Analysis | Available Information & Principal Definitions

Available Information

We make available free of charge, through our website, investors.jackson.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statements, and any amendments to those reports or statements as soon as reasonably practicable after these materials are electronically filed with, or furnished to, the SEC. We use our website as a routine channel for distribution of important information, including news releases, analyst presentations, financial information, and corporate governance information. The content of Jackson’s website is not incorporated by reference into this Form 10-KReport or in any other report or document filed with the SEC, and any references to Jackson’s website are intended to be inactive textual references only. The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Principal Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report

we, us, our and the CompanyJackson Financial Inc. and its consolidated subsidiaries, unless the context refers only to Jackson Financial Inc. as a corporate entity (which we refer to as "JFI" or "Jackson Financial")
JacksonJackson National Life Insurance Company, a Company subsidiary.
Brooke LifeBrooke Life Insurance Company, a Company subsidiary and the direct parent company of Jackson National Life Insurance Company.
Jackson FinanceJackson Finance, LLC, a Company subsidiary.
PPMHPPM Holdings, Inc., a Company subsidiary
PPMPPM America, Inc., a subsidiary of PPMH
ACLAllowance for credit loss
Account value or account balanceThe amount of money in a customer’s account. For example, the value increases with additional premiums and investment gains, and it decreases with withdrawals, investment losses and fees.
AtheneAthene Life Re Ltd. and its affiliates and permitted transferees, including Athene Co-Invest Reinsurance Affiliate 1A Ltd.
Athene Equity InvestmentThe July 2020 investment of $500 million by Athene in JFI for Class A Common Stock and Class B Common Stock, representing approximately 9.9% of the total combined voting power and approximately 11.1% of the total common stock of the Company
Athene Reinsurance TransactionThe funds withheld coinsurance agreement entered into with Athene on June 18, 2020, effective June 1, 2020, to reinsure a 100% quota share of a block of our in-force fixed and fixed index annuity liabilities in exchange for approximately $1.2 billion in ceding commissions
Athene TransactionsThe Athene Reinsurance Transaction and the Athene Equity Investment, together.
AUM (Assets under management)Investment assets that are managed by one of our subsidiaries and includes: (i) the assets in our investment portfolio managed by PPM, which excludes assets held in funds withheld accounts for reinsurance transactions, (ii) third-party assets managed by PPM, including those for Prudential and its affiliates or third parties, and (iii) the separate account assets of our Retail Annuities segment that JNAMJackson National Asset Management, LLC ("JNAM") manages and administers.
Benefit baseA notional amount (not actual cash value) used to calculate the owner’s guaranteed benefits within an annuity contract. The death benefit and living benefit within the same contract may have different benefit bases.
CMBSCommercial mortgage-backed securities
DAC (Deferred acquisition costs)Represent the incremental costs related directly to the successful acquisition of new and certain renewal insurance policies and annuity contracts and which have been deferred on the balance sheet as an asset.
DDTL FacilityDelayed Draw Term Loan Facility
Deferred tax asset or Deferred tax liabilityAssets or liabilities that are recorded for the difference between book basis and tax basis of an asset or a liability.
67

DSI (Deferred sales inducements)Represent amounts that are credited to a policyholder’s account balance that are higher than the expected crediting rates on similar contracts without such an inducement and that are an incentive to purchase a contract and also meet the accounting criteria to be deferred as an asset that is amortized over the life of the contract.
Fixed AnnuityAn annuity that guarantees a set annual rate of return with interest at rates we determine, subject to specified minimums. Credited interest rates are guaranteed not to change for certain limited periods of time.
86
Item 2 | Management’s Discussion and Analysis | Available Information & Principal Definitions
Fixed Index AnnuityAn annuity with an ability to share in the upside from certain financial markets, such as equity indices, and provides downside protection.
Form 10Form 10 registration statement registering the Company’s Class A Common Stock under the Securities Exchange Act of 1934, as amended, which became effective on August 6, 2021.
General account assetsThe assets held in the general accounts of our insurance companies.
GICGuaranteed investment contract
Guarantee FeesFees charged on annuities for optional benefit guarantees
GMAB (Guaranteed minimum accumulation benefit)An add-on benefit (enhanced benefits available for an additional cost) which entitles an owner to a minimum payment, typically in lump-sum, after a set period of time, typically referred to as the accumulation period. The minimum payment is based on the benefit base, which could be greater than the underlying account value.
GMDB (Guaranteed minimum death benefit)An add-on benefit (enhanced benefits available for an additional cost) that guarantees an owner’s beneficiaries are entitled to a minimum payment based on the benefit base, which could be greater than the underlying account value, upon the death of the owner.
GMIB (Guaranteed minimum income benefit)An add-on benefit (available for an additional cost) where an owner is entitled to annuitize the policy and receive a minimum payment stream based on the benefit base, which could be greater than the payment stream resulting from current annuitization of the underlying account value.
GMWB (Guaranteed minimum withdrawal benefit)An add-on benefit (available for an additional cost) where an owner is entitled to withdraw a maximum amount of their benefit base each year, for which cumulative payments to the owner could be greater than the underlying account value.
GMWB for Life (Guaranteed minimum withdrawal benefit for life)An add-on benefit (available for an additional cost) where an owner is entitled to withdraw the guaranteed annual withdrawal amount each year, for the duration of the policyholder’s life, regardless of account performance.
NAICNational Association of Insurance Commissioners
NAVNet asset value
Net flowsNet flows represent the net change in customer account balances during a period, including gross premiums, surrenders, withdrawals and benefits. Net flows exclude investment performance, interest credited to customer accounts and policy charges.
RBC (Risk-based capital)RulesStatutory minimum level of capital that is required by regulators for an insurer to determine insurance company statutory capital requirements. It is based on rules published by the NAIC.support its operations.
RILAA registered index-linked annuity that offers market index-linked investment options, subject to a cap, and offers a variety of guarantees designed to modify or limit losses.
RMBSResidential mortgage-backed securities
Variable annuityA type of annuity that offers tax-deferred investment into a range of asset classes and a variable return, which offers insurance features related to potential future income payments.
VIEVariable interest entity

6887

Item 2 | Management’s Discussion and Analysis | Overview & Executive Summary

Overview of Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I, Item 1 of this Quarterly Report on Form 10-Q,report, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our 20212022 Annual Report.

Jackson Financial Inc. (“Jackson Financial”) along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life. Jackson Financial, domiciled in the United States (“U.S.”), was previously a majority-owned subsidiary of Prudential plc (“Prudential”), London, England and was the holding company for Prudential’s U.S. operations. The Company's demerger from Prudential was completed on September 13, 2021 (the "Demerger"), and the Company no longer is a majority-owned subsidiary of Prudential. See Note 1 to Condensed Consolidated Financial Statements for further discussion of the Demerger. Jackson Financial’s primary life insurance subsidiary, Jackson National Life Insurance Company, is licensed to sell group and individual annuity products (including immediate, registered index-linked, deferred fixed, fixed index and variable annuities), and various protection products, primarily whole life, universal life and variable universal life and term life insurance products in all 50 states and the District of Columbia.

Executive Summary

This executive summary of Management’s Discussion and Analysis of Financial Condition and Results of Operation highlights selected information and may not contain all of the information that is important to current or potential investors in our securities. You should read this Quarterly Report on Form 10-Q,report, together with our 20212022 Annual Report, in theirits entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.

We help Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life. We believe that we are uniquely positioned in our markets because of our differentiated products, well-known brand and disciplined risk management. Our market leadership is supported by our efficient and scalable operating platform and industry-leading distribution network. We believe these core strengths will enable us to grow profitably as an aging, U.S. population transitions into retirement.

We offer a diverse suite of annuities to retail investors in the U.S. Our variable annuities have been among the best-selling products of their kind in the U.S. primarily due to the differentiated features we offer as compared to our competitors, in particular the wider range of investment options and greater freedom to invest across multiple investment options. We also offer fixed index annuities and fixed annuities. In the fourth quarter of 2021, our primary life insurance subsidiary, Jackson National Life Insurance Company and its insurance subsidiaries (“Jackson”) successfully launched Jackson Market Link ProSM and Jackson Market Link Pro AdvisorySM, its commission and advisory based suite of registered index-linked annuities ("RILA"). Also in the fourth quarter of 2021, we entered the Defined Contributiondefined contribution market as a carrier in the AllianceBernstein Lifetime Income Strategy ("AllianceBernstein").Strategy.

We sell our products through a distribution network that includes independent broker-dealers, wirehouses, regional broker-dealers, banks, and independent registered investment advisors, third-party platforms and insurance agents. We have been the top selling retail annuity company in the United States for nine of the past ten years, according to the Life Insurance Marketing and Research Association ("LIMRA").

Our operating platform is scalable and efficient. We administer approximately 77%78% of our in-force policies on our in-house policy administration platform. The remainder of our business is administered through established third-party arrangements. We believe that our operating platform provides us with a competitive advantage by allowing us to grow efficiently and provide superior customer service.

We manage our business through three segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. We report certain activities and items that are not included in these segments, including the results of PPM Holdings, Inc., the holding company of PPM, which manages the majority of our general account investment portfolio, in Corporate and Other. See Note 3 of Notes to Condensed Consolidated Financial Statements for further information on our segments.


6988

Item 2 | Management’s Discussion and Analysis | Executive Summary
There are several significant recent events involving us, including:

•Demerger from Prudential plc:Prudential: We were previously a majority-owned subsidiary of Prudential, plc (“Prudential”), London, England and served as the holding company for its U.S. operations. Thedemerger, Demerger, or separation, from Prudential was completed on September 13, 2021, ("Demerger"), and we are no longernow a majority-owned subsidiary of Prudential.stand-alone U.S. public company. Prudential retained an equity interest in us, which, as a result of sales subsequent to the Demerger, represents 19.2%7.1% of our outstanding Class A Common Stockcommon stock as of March 31, 2022.2023.

•Common Stock ReclassificationRepurchases: : On September 9, 2021, Jackson Financial effected a 104,960.3836276-for-1Since the Demerger and through March 31, 2023, we have repurchased 15,146,955 shares of our common stock splitfor an aggregate consideration of its Class A Common Stock$564 million. After giving effect to those repurchases and Class B Common Stock by wayissuances for our share-based compensation, we had 13,431,514 shares of a reclassificationtreasury stock and 81,044,318 shares of its Class A Common Stock and Class B Common Stock. All share and earnings per share information presented in this Report have been retroactively adjusted to reflect thecommon stock split.outstanding at March 31, 2023.

•Athene TransactionsInflation Reduction Act of 2022: :On June 18, 2020, Jackson announcedAs discussed in Note 15 of Notes to Condensed Consolidated Financial Statements in this report, on August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“AMT”) based on adjusted financial statement income, rather than reported taxable income, and imposed a 1% excise tax on corporate stock repurchases. The AMT provision became effective January 1, 2023. We expect that it had entered into a funds withheld coinsurance agreement (the “Athene Reinsurance Agreement”) with Athene Life Re Ltd. (“Athene”) effective June 1, 2020we will be subject to reinsure on 100% quota share basis, a block of Jackson’s in-force fixed and fixed-index annuity product liabilitiesthe AMT beginning in exchange for a $1.2 billion ceding commission (the “Athene Reinsurance Transaction”). As a result, we hold various investments whose economic performance accrues2023. We expect any AMT incurred to Athene but is reported in our financial statements. In July 2020, Athene invested $500 million of capital into the Company for an equity interest. In August 2020, the Company contributed the $500 million,be treated as a capital contributiontaxable temporary difference, and recorded as a deferred tax asset, so it is not expected to Jackson. Athene has an equity interest in us, which represents an 8.9% economic interest and an 8.9% voting interest ofhave a direct impact on total income tax expense; although it could affect our outstanding Class A Common Stock and Class B Common Stock ascash tax liabilities. As of March 31, 2022. Athene no longer owns2023, we have not recorded any sharesprovision for the AMT. The calculation of Class B Common Stock as a resultadjusted financial statement income, and therefore the AMT, is subject to the issuance of regulatory guidance by the U.S. Department of the automatic conversionTreasury, which is expected throughout 2023. Any excise tax incurred on corporate stock repurchases will generally be recognized as part of those Class B shares into sharesthe cost basis of Class A Common Stock.the treasury stock acquired and not reported as part of income tax expense. We continue to monitor developments and regulations associated with the IRA for any potential future impacts on our business, financial condition, results of operations and cash flows.

Our GAAP results are affected by the potential variability associated with our amortization of deferred acquisition costs and the fact that our use of derivatives does not qualify for GAAP deferral, meaning that the derivatives are marked to market each reporting period. See “Summary of Critical Accounting Estimates” below for more information.

Also, anAn understanding of several key operating measures, including sales, account value, net flows, benefit base and AUM,assets under management ("AUM"), is helpful to evaluating our results. See “Key Operating Measures” below. Finally, we are affected by various economic, industry and regulatory trends, which are described below under “Macroeconomic, Industry and Regulatory Trends.”


Impact of Recent Accounting Pronouncements

For a complete discussion of new accounting pronouncementsaffecting us, see Note 2 of Notes to Condensed Consolidated Financial Statements.

As discussed in Note 2 of Notes to Condensed Consolidated Financial Statements in this report, we adopted Accounting Standards Update ("ASU") 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts” (“LDTI”), for our fiscal year beginning January 1, 2023, with a transition date of January 1, 2021. Based upon the elected transition methods, the adoption of LDTI resulted in a decrease in total equity of $3.0 billion as of the transition date of January 1, 2021, comprised of a reduction in accumulated other comprehensive income ("AOCI") of $0.4 billion and a reduction in retained earnings of $2.6 billion. The adoption of the standard resulted in increases in net income attributable to Jackson Financial Inc. of $489 million and $234 million for the years ended December 31, 2022 and 2021, respectively, and also resulted in an increase in total equity of $223 million and a decrease of $2.8 billion for the years ended December 31, 2022 and 2021, respectively, from the amounts reported prior to the adoption of LDTI. The change in the equity impact from the transition date was primarily due to higher interest rates and is comprised of a reduction in retained earnings that is more than offset by an increase in AOCI. See further discussion in Note 2- New Accounting Standards of the Notes to Condensed Consolidated Financial Statements for the significant changes associated with this change in accounting principle.

89
Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures
Non-GAAP Financial Measures

In addition to presenting our results of operations and financial condition in accordance with U.S. GAAP, we use and report, selected non-GAAP financial measures. Management believes that the use of these non-GAAP financial measures, together with relevant U.S. GAAP financial measures, provides a better understanding of our results of operations, financial condition and the underlying performance drivers of our business. These non-GAAP financial measures should be considered supplementary to our results of operations and financial condition that are presented in accordance with U.S. GAAP and should not be viewed as a substitute for the U.S. GAAP financial measures. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Consequently, our non-GAAP financial measures may not be comparable to similar measures used by other companies. These non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with U.S. GAAP.


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Adjusted Operating Earnings

Adjusted Operating Earnings is an after-tax non-GAAP financial measure, which we believe should be used to evaluate our financial performance on a consolidated basis by excluding certain items that may be highly variable from period to period due to accounting treatment under U.S. GAAP or that are non-recurring in nature, as well as certain other revenues and expenses that we do not view as driving our underlying performance. Adjusted Operating Earnings should not be used as a substitute for net income as calculated in accordance with U.S. GAAP. However, we believe the adjustments to net income are useful for gaining an understanding of our overall results of operations.

Adjusted Operating Earnings equals our net income adjusted to eliminate the impact of the following items:

1.Guaranteed Benefits andNet Hedging Results:Results the: Comprised of: (i) fees attributed to guaranteed benefits, the associated movements in optional guaranteed benefit liabilities and related claims and benefit payments are excluded from Adjusted Operating Earnings, as we believe this approach appropriately removes the impact to both revenue and related expenses associated with the guaranteed benefit features that are offered for certain of our variable annuities and fixed index annuities and gives investors a better picture of what is driving our underlying performance. This adjustment includes the following components:

•Fees Attributable to Guarantee Benefits: fees earned in conjunction with guaranteed benefit features offered for certain of our variable annuities and fixed index annuities are set at a level intended to mitigate the cost of hedging and funding the liabilities associated with such guaranteed benefit features. The full amount of the fees attributable to guaranteed benefit features have been excluded from Adjusted Operating Earnings as the related net movements in freestanding derivatives and net reserve and embedded derivative movements, as described below, have been excluded from Adjusted Operating Earnings. This adjusted presentation of our earnings is intended to directly align revenue and related expenses associated with the guaranteed benefit features;

•Net Movement in Freestanding Derivatives, except earned income (periodic settlements and changes in settlement accruals) on derivatives that are hedges of investments, but do not qualify for hedge accounting treatment:benefits; (ii) changes in the fair value of our freestanding derivatives used to manage the risk associated with our lifemarket risk benefits and annuityother guaranteed benefit features; (iii) the movements in reserves, including those arising from themarket risk benefits, guaranteed benefit features offeredaccounted for certainas embedded derivative instruments, and related claims and benefit payments; (iv) amortization of our variable annuities and fixed index annuities. Net movements in freestanding derivatives have beenthe balance of unamortized deferred acquisition costs at the date of transition to current accounting guidance on January 1, 2021 associated with items excluded from Adjusted Operating Earningsadjusted operating earnings prior to transition; and (v) the impact on the valuation of Guaranteed Benefits and Net Hedging Results arising from changes in underlying actuarial assumptions. These items are excluded from adjusted operating earnings as the market value of these derivativesthey may vary significantly from period to period as a result ofdue to near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business;business. We believe this approach appropriately removes the impact to both revenue and related expenses associated with Guaranteed Benefits and Net Hedging Results and provides investors a better picture of the drivers of our underlying performance.

•Net Reserve and Embedded Derivative Movements: changes in the valuation of certain life and annuity reserves, a portion of which are accounted for as embedded derivative instruments, and which are primarily composed of variable and fixed index annuity reserves, including those arising from the guaranteed benefit features offered for certain of our variable annuities. Net reserve and embedded derivative movements have been excluded from Adjusted Operating Earnings as the carrying values of these derivatives may vary significantly from period to period as the result of near-term market conditions and policyholder behavior-related inputs and therefore are not directly comparable or reflective of the underlying performance of our business. Movements in reserves attributable to the current period claims and benefit payments in excess of a customer’s account value on these policies are also excluded from Adjusted Operating Earnings as these benefit payments are affected by near-term market conditions and policyholder behavior-related inputs and therefore may vary significantly from period to period;

•DAC and Deferred Sales Inducements ("DSI") Impact:2. amortization of deferred acquisition costs and deferred sales inducements associated with the items excluded from Adjusted Operating Earnings;

•Assumption changes:the impact on the valuation of Net Derivative and Reserve Movements, including amortization on DAC, arising from changes in underlying actuarial assumptions on an annual basis;

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2.Net Realized Investment Gains and Losses including change in fair value of funds withheld embedded derivative: Realized: Comprised of: (i) realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio, as well asportfolio; and (ii) impairments of securities, after adjustment for the non-credit component of the impairment chargescharges. These items are excluded from pretax adjusted operating earnings as they may vary significantly from period to period due to near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business. We believe this approach provides investors a better picture of the drivers of our underlying performance.

3.Change in Value of Funds Withheld Embedded Derivative and Net investment income on funds withheld assets:Composed of: (i) the change in fair value of funds withheld embedded derivative related to the Athene Reinsurance Transaction;

3.Loss on Athene Reinsurance Transaction: includes contractual ceding commission, cost of reinsurance write-offderivatives; and DAC and DSI write-off related to the Athene Reinsurance Transaction;

4.Net investment income on funds withheld assets: includes(ii) net investment income on funds withheld assets related to funds withheld reinsurance transactions;transactions. These items are excluded from pretax adjusted operating earnings as they are not reflective of the underlying performance of our business. We believe this approach provides investors a better picture of the drivers of our underlying performance.

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5.Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures
4.Other items: one-time or other non-recurring items, such as costs relating to the Demerger and our separation from Prudential,Comprised of: (i) the impact of discontinued operations and investments that are consolidated onin our financial statements due to U.S. GAAP accounting requirements, such as our investments in CLOs,collateralized loan obligations (CLOs), but for which the consolidation effects are not alignedconsistent with our economic interest or exposure to those entities.entities, and (ii) one-time or other non-recurring items, such as costs relating to our separation from Prudential. These items are excluded from adjusted operating earnings as they are not reflective of the underlying performance of our business. We believe this approach provides investors a better picture of the drivers of our underlying performance.

Operating income taxes are calculated using the prevailing corporate federal income tax rate of 21% while taking into account any items recognized differently in our financial statements and federal income tax returns, including the dividends received deduction and other tax credits. For interim reporting periods, the companyCompany uses an estimated annual effective tax rate (“ETR”) in computing its tax provision including consideration of discrete items.

The following is a reconciliation of Adjusted Operating Earnings to net income (loss) attributable to Jackson Financial Inc., the most comparable U.S. GAAP measure.

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
(in millions)(in millions)
Net income (loss) attributable to Jackson Financial, Inc.$2,025 $2,932 
Net income (loss) attributable to Jackson Financial Inc.Net income (loss) attributable to Jackson Financial Inc.$(1,497)$2,194 
Income tax expense (benefit)Income tax expense (benefit)330 586 Income tax expense (benefit)(558)388 
Pretax income (loss) attributable to Jackson Financial IncPretax income (loss) attributable to Jackson Financial Inc2,355 3,518 Pretax income (loss) attributable to Jackson Financial Inc(2,055)2,582 
Non-operating adjustments (income) loss:Non-operating adjustments (income) loss:Non-operating adjustments (income) loss:
Guaranteed benefits and hedging results:Guaranteed benefits and hedging results:Guaranteed benefits and hedging results:
Fees attributable to guarantee benefit reservesFees attributable to guarantee benefit reserves(764)(672)Fees attributable to guarantee benefit reserves(780)(764)
Net movement in freestanding derivativesNet movement in freestanding derivatives1,476 3,031 Net movement in freestanding derivatives2,512 1,476 
Market risk benefits (gains) losses, netMarket risk benefits (gains) losses, net(174)(1,907)
Net reserve and embedded derivative movementsNet reserve and embedded derivative movements(1,839)(4,592)Net reserve and embedded derivative movements189 40 
DAC and DSI impact345 696 
Assumption changes— — 
Total guaranteed benefits and hedging results(782)(1,537)
Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative(898)(1,050)
Amortization of DAC associated with non-operating items at date of transition to LDTIAmortization of DAC associated with non-operating items at date of transition to LDTI153 173 
Total guaranteed benefits and net hedging resultsTotal guaranteed benefits and net hedging results1,900 (982)
Net realized investment (gains) lossesNet realized investment (gains) losses68 130 
Net realized investment (gains) losses on funds withheld assetsNet realized investment (gains) losses on funds withheld assets673 (1,028)
Net investment income on funds withheld assetsNet investment income on funds withheld assets(260)(291)Net investment income on funds withheld assets(307)(260)
Other itemsOther items3 (7)Other items23 3 
Total non-operating adjustmentsTotal non-operating adjustments(1,937)(2,885)Total non-operating adjustments2,357 (2,137)
Pretax Adjusted Operating EarningsPretax Adjusted Operating Earnings418 633 Pretax Adjusted Operating Earnings302 445 
Operating income taxesOperating income taxes64 65 Operating income taxes31 68 
Adjusted Operating EarningsAdjusted Operating Earnings$354 $568 Adjusted Operating Earnings$271 $377 

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Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures
Adjusted Book Value Attributable to Common Shareholders and Adjusted Operating ROE Attributable to Common Shareholders

We use Adjusted Operating Return on Equity ("ROE") Attributable to Common Shareholders to manage our business and evaluate our financial performance. Adjusted Operating ROE Attributable to Common Shareholders excludes items that vary from period to period due to accounting treatment under U.S. GAAP or that are non-recurring in nature, as such items may distort the underlying performance of our business. We calculate Adjusted Operating ROE Attributable to Common Shareholders by dividing our Adjusted Operating Earnings by average Adjusted Book Value.Value Attributable to Common Shareholders. Adjusted Book Value Attributable to Common Shareholders excludes Accumulated Other Comprehensive Income (Loss) ("AOCI")AOCI attributable to Jackson Financial Inc. AOCI attributable to Jackson Financial Inc. does not include AOCI arising from investments held within the funds withheld account related to the Athene Reinsurance Transaction. We exclude AOCI attributable to Jackson Financial Inc. from Adjusted Book Value Attributable to Common Shareholders because our invested assets are generally invested to closely match the duration of our liabilities, which are longer duration in nature, and therefore we believe period-to-period fair market value fluctuations in AOCI to be inconsistent with this objective. We believe excluding AOCI attributable to Jackson Financial Inc. is more useful to investors in analyzing trends in our business. Changes in AOCI within the funds withheld account related to the Athene Reinsurance Transaction offset the related non-operating earnings from the Athene Reinsurance Transaction resulting in a minimal net impact on Adjusted Book Value of Jackson Financial Inc.

Adjusted Book Value Attributable to Common Shareholders and Adjusted Operating ROE Attributable to Common Shareholders should not be used as substitutes for total shareholders’ equity and ROE as calculated using annualized net income and average equity in accordance with U.S. GAAP. However, we believe the adjustments to equity and earnings are useful to gaining an understanding of our overall results of operations.

The following is a reconciliation of Adjusted Book Value Attributable to Common Shareholders to total shareholders’ equity and a comparison of Adjusted Operating ROE Attributable to Common Shareholders to ROE Attributable to Common Shareholders, the most comparable U.S. GAAP measure:

Three Months Ended March 31,
20222021
(in millions)
Total shareholders' equity$9,574 $9,984 
Adjustments to total shareholders’ equity:
Exclude accumulated other comprehensive income (loss) attributable to Jackson Financial Inc. (1)
253 (1,170)
Adjusted Book Value$9,827 $8,814 
ROE81.1 %120.8 %
Adjusted Operating ROE on average equity15.1 %29.1 %
(1) Excludes $(686) million and $273 million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of March 31, 2022 and 2021, respectively.
Three Months Ended March 31,
20232022
(in millions)
Net income (loss) attributable to Jackson Financial Inc.$(1,497)$2,194 
Adjusted Operating Earnings271 377 
Total shareholders' equity$8,638 $8,194 
Less: Preferred stock533 — 
Total common shareholders' equity8,105 8,194 
Adjustments to total common shareholders’ equity:
Exclude AOCI attributable to Jackson Financial Inc. (1)
476 (567)
Adjusted Book Value Attributable to Common Shareholders$8,581 $7,627 
ROE Attributable to Common Shareholders(71.5)%110.8 %
Adjusted Operating ROE Attributable to Common Shareholders on average equity11.7 %21.2 %
(1) Excludes $(1,832) million and $(686) million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of March 31, 2023 and 2022, respectively, are not attributable to Jackson Financial Inc. and are therefore not included as an adjustment to total shareholders’ equity in the reconciliation of Adjusted Book Value Attributable to Common Shareholders to total shareholders’ equity.


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Item 2 | Management’s Discussion and Analysis | Key Operating Measures

Key Operating Measures

We use a number of operating measures, discussed below, that management believes provide useful information about our businesses and the operational factors underlying our financial performance.

Sales

Sales of annuities and institutional products include all money deposited by customers into new and existing contracts. We believe sales statistics are useful to gaining an understanding of, among other things, the attractiveness of our products, how we can best meet our customers’ needs, evolving industry product trends and the performance of our business from period to period.

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
(in millions)(in millions)
SalesSalesSales
Variable annuitiesVariable annuities$4,575 $4,674 Variable annuities$2,474 $4,575 
RILARILA199 — RILA533 199 
Fixed Index AnnuitiesFixed Index Annuities19 40 Fixed Index Annuities62 19 
Fixed Annuities(1)Fixed Annuities(1)4 10 Fixed Annuities(1)71 4 
Total Retail Annuity SalesTotal Retail Annuity Sales4,797 4,724 Total Retail Annuity Sales3,140 4,797 
Total Institutional Product SalesTotal Institutional Product Sales975 — Total Institutional Product Sales649 975 
Total SalesTotal Sales$5,772 $4,724 Total Sales$3,789 $5,772 
(1) Includes payout annuities

For the three months ended March 31, 2022,2023, total sales increaseddecreased by $1,048$1,983 million compared to the three months ended March 31, 2021, driven2022. Lower retail sales were primarily by $975 million indue to decreased sales of institutional products and $199 million of sales from our new RILA product launched in the fourth quarter of 2021. These increases were partially offset by lower sales of variable annuities driven by decreased sales of variable annuities with lifetime living benefits, partially offset by RILA sales. In addition, sales of our lifetime income solutions offering ininstitutional products were lower by $326 million, compared to the defined contribution market that was launched in the fourth quarter of 2021.three months ended March 31, 2022. Sales of fixed index and fixed annuities remained at historically low levels followingincreased in 2023 due to the higher interest rate environment, which enabled more favorable pricing actions taken in early 2021.actions.

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Item 2 | Management’s Discussion and Analysis | Key Operating Measures

Account Value

Account value generally equals the account value of our variable annuities, RILA, fixed index annuities, fixed annuities, interest sensitive life, and institutional products. It reflects the total amount of customer invested assets that have accumulated within a respective product and equals cumulative customer contributions, which includes gross deposits or premiums, plus accrued credited interest plus or minus the impact of market movements, as applicable, less withdrawals and various fees. We believe account value is a useful metric in providing an understanding of, among other things, the sources of potential fee income generation, potential benefit obligations and risk management priorities.

As of March 31,
20222021March 31, 2023December 31, 2022
(in millions)(in millions)
Account ValueAccount ValueAccount Value
GMWB For LifeGMWB For Life$175,102 $172,867 GMWB For Life$156,046 $149,706 
GMWBGMWB6,768 6,968 GMWB5,849 5,674 
Other Guarantees - Living Benefits1,656 1,883 
GMIBGMIB1,364 1,356 
No Living BenefitsNo Living Benefits57,029 54,812 No Living Benefits50,658 49,073 
Total Variable Annuity Account ValueTotal Variable Annuity Account Value240,555 236,530 Total Variable Annuity Account Value213,917 205,809 
RILARILA305 — RILA2,501 1,875 
Fixed Index Annuity (1)
Fixed Index Annuity (1)
307 214 
Fixed Index Annuity (1)
491 415 
Fixed Annuity (1)
Fixed Annuity (1)
1,100 1,070 
Fixed Annuity (1)
1,206 1,219 
Total Fixed & Fixed Index Annuity Account Value1,407 1,284 
Total Fixed & Fixed Index Annuity Account Value (1)
Total Fixed & Fixed Index Annuity Account Value (1)
1,697 1,634 
Total Retail Annuities Account Value$242,267 $237,814 
Payout Annuity(1)
Payout Annuity(1)
655 649 
Total Retail Annuities Account Value (1)
Total Retail Annuities Account Value (1)
$218,770 $209,967 
Total Institutional Products Account ValueTotal Institutional Products Account Value$9,173 $10,579 Total Institutional Products Account Value$8,691 $9,019 
Total Closed Life and Annuity Blocks Account Value (2)
$8,666 $9,003 
Total Closed Life and Annuity Blocks Account Value (1)
Total Closed Life and Annuity Blocks Account Value (1)
$8,272 $8,288 
(1) Net of reinsurance to Athene.
(2) Excludes payout annuities and traditional life insurance without account value.
(1) Net of reinsurance.
(1) Net of reinsurance.

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Item 2 | Management’s Discussion and Analysis | Key Operating Measures
Net Flows

Net flows represent the net change in customer account balances during a period, including gross premiums, surrenders, withdrawals and benefits. Net flows exclude investment performance, interest credited to customer accounts, transfers between fixed and variable benefits for variable annuities and policy charges. We believe net flows is a useful metric in providing an understanding of, among other things, sales, ongoing premiums and deposits, the changes in account value from period to period, sources of potential fee income and policyholder behavior.

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
(in millions)(in millions)
Net Flows:Net Flows:Net Flows:
Variable AnnuityVariable Annuity$2 $(241)Variable Annuity$(1,774)$2 
RILARILA198 — RILA516 198 
Fixed Index Annuity (1)
Fixed Index Annuity (1)
(300)(326)
Fixed Index Annuity (1)
70 (6)
Fixed Annuity (1)
Fixed Annuity (1)
(293)(302)
Fixed Annuity (1)
(11)16 
Total Retail Annuities Net Flows$(393)$(869)
Payout Annuity (1)
Payout Annuity (1)
(26)(29)
Total Retail Annuities Net Flows (1)
Total Retail Annuities Net Flows (1)
(1,225)181 
Net flows cededNet flows ceded(1,203)(586)
Total Retail Annuities net flows, gross of reinsuranceTotal Retail Annuities net flows, gross of reinsurance$(2,428)$(405)
Total Institutional Products Net FlowsTotal Institutional Products Net Flows$316 $(545)Total Institutional Products Net Flows$(391)$316 
Total Closed Life and Annuity Blocks Net Flows (2)
$(87)$(83)
Total Closed Life and Annuity Blocks Net Flows (1)
Total Closed Life and Annuity Blocks Net Flows (1)
$(47)$(80)
(1) Gross of reinsurance to Athene.
(2) Excludes payout annuities and traditional life insurance without account value.
(1) Net of reinsurance.
(1) Net of reinsurance.

Net flows, improvednet of reinsurance, decreased for the three months ended March 31, 2022,2023, compared to the three months ended March 31, 2021, due primarily to positive net flows from2022, driven by decreased variable annuities ("VA")annuity sales and RILA, as well as increased sales ofwithdrawals for institutional products, offsetting surrender and death benefit outflows from our large in-force block.

products.

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Item 2 | Management’s Discussion and Analysis | Key Operating Measures
Benefit Base

Benefit base refers to a notional amount that represents the value of a customer’s guaranteed benefit, and therefore may be a different value from the invested assets in a customer’s account value. The benefit base may be used to calculate the fees for a customer’s guaranteed benefits within an annuity contract. The guaranteed death benefit and guaranteed living benefit within the same contract may not have the same benefit base. We believe benefit base is a useful metric for our variable annuity policies in providing an understanding of, among other things, fee income generation, potential optional guarantee benefit obligations and risk management priorities. The following table shows variable annuity account value and benefit base as of March 31, 20222023 and December 31, 2021:2022:

March 31, 2022December 31, 2021March 31, 2023December 31, 2022
Account ValueBenefit BaseAccount ValueBenefit BaseAccount ValueBenefit BaseAccount ValueBenefit Base
(in millions)(in millions)
No Living BenefitsNo Living Benefits$57,029 N/A$60,719 N/ANo Living Benefits$50,658 N/A$49,073 N/A
By Guaranteed Living Benefits:By Guaranteed Living Benefits:By Guaranteed Living Benefits:
GMWB for Life GMWB for Life175,102 186,177 188,078 183,626  GMWB for Life156,046 190,077 149,706 189,814 
GMWB GMWB6,768 5,837 7,318 5,860  GMWB5,849 5,592 5,674 5,655 
GMIB (1)
GMIB (1)
1,656 2,019 1,808 2,059 
GMIB (1)
1,364 1,889 1,356 1,929 
TotalTotal$240,555 $194,033 $257,923 $191,545 Total$213,917 $197,558 $205,809 $197,398 
By Guaranteed Death Benefit:By Guaranteed Death Benefit:By Guaranteed Death Benefit:
Return of AV (No GMDB) Return of AV (No GMDB)$28,986 N/A$30,337 N/A Return of AV (No GMDB)$25,878 N/A$25,049 N/A
Return of Premium Return of Premium183,793 136,365 197,544 135,034  Return of Premium163,826 138,469 157,339 138,419 
Highest Anniversary Value Highest Anniversary Value14,413 14,690 15,599 14,767  Highest Anniversary Value12,549 14,115 12,128 14,272 
Rollup Rollup3,858 4,811 4,188 4,850  Rollup3,287 4,640 3,229 4,695 
Combination HAV/Rollup Combination HAV/Rollup9,505 10,395 10,255 10,402  Combination HAV/Rollup8,377 10,260 8,064 10,297 
TotalTotal$240,555 $166,261 $257,923 $165,053 Total$213,917 $167,484 $205,809 $167,683 
(1) Substantially all of our GMIB benefits are reinsured.
(1) Substantially all our GMIB benefits are reinsured.
(1) Substantially all our GMIB benefits are reinsured.

AUMAssets Under Management

AUM, or assets under management, refers to investment assets that are managed by one of our subsidiaries and includes: (i) the assets in our investment portfolio managed by PPM, which excludes assets held in funds withheld accounts for reinsurance transactions, (ii) third-party assets managed by PPM, including those for Prudential and its affiliates or third parties, and (iii) the separate account assets of our Retail Annuities segment that Jackson National Asset Management ("JNAM") manages and administers. Total AUM reflects exclusions between segments to avoid double counting. We believe AUM is a useful metric for understanding of, among other things, the sources of our earnings, net investment income and performance of our invested assets, customer directed investments and risk management priorities.

March 31,December 31,March 31,December 31,
2022202120232022
(in millions)(in millions)
Jackson Invested AssetsJackson Invested Assets$44,959 $47,224 Jackson Invested Assets$44,476 $44,486 
Third Party Invested Assets (including CLOs)Third Party Invested Assets (including CLOs)30,639 31,980 Third Party Invested Assets (including CLOs)27,689 26,993 
Total PPM AUMTotal PPM AUM75,598 79,204 Total PPM AUM72,165 71,479 
Total JNAM AUMTotal JNAM AUM260,822 280,250 Total JNAM AUM227,764 219,070 
Total AUMTotal AUM$336,420 $359,454 Total AUM$299,929 $290,549 

PPM manages the majority of our investment portfolio and provides investment management services to Prudential affiliates in Asia, former affiliates in the United Kingdom, and other third parties across markets, including public fixed income, private equity, private debt and commercial real estate.


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96

Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends

Macroeconomic, Industry and Regulatory Trends

We discuss a number of trends and uncertainties below that we believe could materially affect our future business performance, including our results of operations, our investments, our cash flows, and our capital and liquidity position.

Macroeconomic and Financial Market Conditions

Our business and results of operations are affected by macroeconomic factors. The level of interest rates and shape of the yield curve, credit and equity market performance (including market paths,and equity volatility, and other factors), regulation, tax policy, the level of U.S. employment, inflation and the overall economic growth rate can affect both our short and long-term profitability. Monetary and fiscal policy in the United States,U.S., or similar actions in foreign nations, could result in increased volatility in financial markets, including interest rates, currencies and equity markets, and could impact our business in both the short-term and medium-term. Political events, including the imposition of stay-at-home orders and business shutdowns or other effects arising as a result ofprecautions with the COVID-19 pandemic, civil unrest, tariffs or other barriers to international trade, and the effects that these or other political events could have on levels of economic activity, could also impact our business through impacts on consumers’ behavior or impact on financial markets.

In the short- to medium-term, the potential for increased volatility could pressure sales and reduce demand for our products as consumers consider purchasing alternative products to meet their objectives, especially while prevailing interest rates remain below historical averages. In addition, low interest rate environments can make it difficult to consistently develop products that are attractive to customers while rising interest rates may make certain product features more attractive.objectives. Our financial performance can be adversely affected by market volatility and equity market declines if fees assessed on the account value of our annuities fluctuate, hedging costs increase and revenues decline due to reduced sales and increased outflows.

In early March through late April, several regional U.S. banks were taken over by federal regulators with the Federal Deposit Insurance Corporation ("FDIC") being named the receiver. These bank failures raised concern among investors and depositors regarding the solvency and liquidity of regional banks across the country, leading to increased stress on the banking sector. In response, the FDIC invoked a systemic risk exception allowing the government to ensure repayment of all amounts on deposit at the failed banks. We continue to monitor and analyze the ongoing situation in the banking sector. Except for assets held as part of reinsurance arrangements within our funds withheld portfolios, where the Company does not have exposure to default risk, the Company's general account portfolio had no exposure to Silicon Valley Bank ("SVB"), Signature Bank, First Republic Bank, and Credit Suisse Additional Tier 1 debt as of March 31, 2023.

Equity Market Environment

Our financial performance is impacted by the performance of equity markets. For example, our variable annuities earn fees based on the account value, which changes with equity market levels. After a very volatile 2020, U.S. equity markets performed well in 2021, with the S&P 500 generally at or near all timeall-time highs throughout the year. In the first quarter of 2022, equity markets declined, and equity volatility increased, resulting in higher hedging costs. TheWhile that reversed in the first quarter of 2023 (as markets increased and equity volatility eased somewhat), the financial performance of our hedging program could be impacted by any future large directional market movements, or periods of high volatility. In particular, our hedges could be less effective in periods of large directional movements or we could experience more frequent or more costly rebalancing in periods of high volatility, which would lead to adverse performance versus our hedge targets and increased hedging costs. Further, we are also exposed to basis risk, which results from our inability to purchase or sell hedge assets whose performance is perfectly correlated to the performance of the funds into which customers allocate their assets. We make funds available to customers where we believe we can transact in sufficiently correlated hedge assets, and we anticipate some variance in the performance of our hedge assets and customer funds. This variance may result in our hedge assets outperforming or underperforming the customer assets they are intended to match. This variance may be exacerbated during periods of high volatility, leading to a mismatch in our hedge results relative to our hedge targets and U.S GAAP results.


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Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends
Interest Rate Environment

We believe theThe interest rate environment has affected, and will continue to impactaffect our business and financial performance in the future for several reasons, including the following:following reasons:

•Periods of sharp rises in interest rates, as we have seen recently as a result of the Federal Reserve's actions and signals about upcoming interest rate decisions, impact investment related activity including investment income returns, net investment spread results, new money rates, mortgage loan prepayments, and bond redemptions. Due to increases in interest rates, the yield on new investments has generally exceeded the yield on asset maturities and redemptions (runoff yield). Rising interest rates also impact the hedging results of our variable annuity business as the market value of interest rate hedges decline driving immediate hedging losses. We would expect lower hedging costs and reduced levels of hedging going forward. Further, we expect near-term hedging losses from rising rates may be more than offset by changes in the fair value of the related guaranteed benefit liabilities as was the case for the three months ended March 31, 2023.

•Interest rate increases also expose us to disintermediation risk, where higher rates make currently sold fixed annuity products more attractive while simultaneously reducing the market value of assets backing our liabilities. This creates an incentive for our customers to lapse their products in an environment where selling assets causes us to realize losses.

•Additionally, our statutory total adjusted capital ("TAC") may be negatively impacted by rising rates due to minimum required reserving levels (i.e., cash surrender value floor) when reserve releases are limited and unable to offset interest rate hedging losses. The RBC ratio may increase or decrease depending on the interaction between movements in TAC and movements in statutory required capital (the company action level, or "CAL”), which could impact available dividends from our insurance subsidiaries. CAL will generally decline in rising interest rate environments. However, the cash surrender value floor may also materially affect the CAL calculation (in addition to reserves), potentially leading to rising rates negatively impacting the RBC ratio as well.

•We operated in a low interest rate environment for several years. A prolonged low interest rate environment could subjectsubjects us to increased hedging costs or an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for optional guaranteed benefits, decreasing statutory surplus, which would adversely affect their ability to pay dividends. Certain inputs to the statutory models rely on prescribed interest rates, which are in turn, determined using a historical interest rate perspective with a mean reversion path over the longer term. At low interest rate levels these prescribed rates could decline further as the NAIC updates the calculations each year, which would adversely impact our statutory capital. In addition, low interest rates could also increase the perceived value of optional guaranteed benefit features to our customers, which in turn could lead to a higher utilization of withdrawal or annuitization features of annuity policies and higher persistency of those products over time. Finally, low interest rates could continue to cause an acceleration of DAC amortization or reserve increase due to loss recognition for annuities and interest-sensitive life insurance. A gradual rise in interest rates would have benefits that are offsetting to risks previously described. Those potential benefits of rising interest rates include increased new money investment yields, a reduction in hedging requirements and more attractive product features.

•SomeFinally, some of our annuities have a guaranteed minimum interest crediting rate. These guaranteed minimum interest crediting rates may not be lowered, even if(“GMICRs”) that limit our ability to reduce crediting rates. If earnings on our investment portfolio decline, resultingthose GMICRs may result in net investment spread compression that negatively impacts earnings. Many of our annuities have GMICRs that reset at contractually specified times after issue. In addition, we expect more customersthe current rising interest rate environment, those GMICRs have increased. Conversely, in a falling interest rate environment they will eventually decrease; however, there may be a lag between interest rate movements and the GMICR reset, temporarily limiting our ability to holdlower crediting rates. When policies withhave comparatively high guaranteed minimum interest crediting rates longerGMICRs, in a subsequent low interest rate environment resultingmore customers are expected to hold on to their policies, which may result in lower lapses than previously expected lapse rates. Conversely, a rise in the average yield on our investment portfolio should positively impact earnings. Similarly, we expect customers would be less likely to hold policies if existing guaranteed minimum interest crediting rates are perceived to have less value as interest rates rise, resulting in higher than previously expected lapse rates.

•    To the extent interest rates continue to increase, consistent with the Federal Reserve’s signals about upcoming interest rate decisions, the effects of low interest rates discussed above will diminish over time. However, both nominal and real interest rates remain low by historical standards and may continue to be so even after several rounds of interest rate increases by the Federal Reserve. During periods of sharp rises in interest rates, the results of our variable annuity business, statutory capital and RBC Ratio may be impacted both positively and negatively. While rising rates result in hedging losses in the near-term due to reductions in the market value of interest rate hedges, we would expect lower hedging costs and reduced levels of hedging going forward in a higher interest rate environment. Further, we expect near-term hedging losses from rising rates may be offset by changes in the fair value of the related guaranteed benefit liabilities as was the case in the first quarter of 2022. Our statutory capital and RBC Ratio may be negatively impacted by rising rates due to minimum required reserving levels (i.e., cash surrender value floor) where reserve releases are limited and unable to offset interest rate hedging losses.expected.

Credit Market Environment

Our financial performance is impacted by conditions in fixed income markets. After tightening in 2021, credit spreads widened againin 2023 and remained relatively unchanged in the first quarter of 2022, and credit defaults have also reduced from levels seen in 2020.2023. As credit spreads widen, the fair value of our existing investment portfolio generally decreases, although we generally expect the widening spreads to increase the yield on new fixed income investments. Conversely, as credit spreads tighten, the fair value of our existing investment portfolio generally increases, and the yield available on new investment purchases decreases. While changing credit spreads impact the fair value of our investment portfolio, this revaluation is generally reflected in our Accumulated Other Comprehensive Income.AOCI. The revaluation will impact net income for realized gains or losses from the sale of securities, the change in fair value of trading securities or securities carried at fair value under the fair value election, or potential changes in the allowance for credit loss ("ACL"). ShiftsIn addition, if credit conditions deteriorate due to a recession or other negative credit events in capital markets, we could experience an increase in defaults and other-than-temporary-impairments (“OTTI”).
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Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends

OTTI in our underlying investments would result in a reduction in TAC held by our insurance company subsidiaries. Also, shifts in the credit quality or credit rating downgrades of the assets underlying our investment portfolioinvestments as a result of stressed credit conditions may also impact the level of regulatory required statutory capital for our insurance company subsidiaries. As such, significant credit rating downgrades or paymentalong with elevated defaults couldand OTTI losses would negatively impact our RBC ratio.ratio, which could impact available dividends from our insurance subsidiaries.


79

COVID-19Pandemics and Other Public Health Crises

We continue to closely monitor developments related to the COVID-19 pandemic. The COVID-19 pandemic has caused significant economicdisrupted our business and financial turmoil bothcontributed to additional operating costs over the past several years. While the effects of that pandemic appear to be subsiding, other pandemics, epidemics or disease outbreaks in the United StatesU.S. or globally could disrupt our business by affecting how we protect and around the world. These conditionsinteract with our critical workforce, customers, key vendors, third-party suppliers, or counterparties with whom we transact. Disruption could continueresult from an inability of those persons to work or transact effectively due to illness, quarantines, and could worsengovernment actions in the future. At this time, it is not possibleresponse to estimate the long-term effectiveness of any therapeutic treatments and vaccines for COVID-19, or their efficacy with respect to current or future variants or mutations of COVID-19, or the longer-term effects that the COVID-19 pandemic could have on our business.public health emergencies. The extent to which the COVID-19 pandemic impacts our business, resultsand severity of operations, financial condition and cash flowsgovernmental actions will necessarily depend on future developments which are highly uncertainthe extent and cannot be predicted, including the availability and efficacy of vaccines against COVID-19 and against variant strainsseverity of the virus. Federalperceived emergency. We have risk management plans in place and state authorities’ actions could include restrictions of movements. We are nothave been able to predict the durationnavigate through COVID-19 with remote and effectiveness of governmental and regulatory actions taken to contain or address the COVID-19 pandemic or the impact of future laws, regulations or restrictions on our business.hybrid work environments; however, those plans may be challenged by a new public health emergency.

Consumer Behavior

We believe that many retirees have begun to look to tax-efficient savings products as a tool for addressing their unmet need for retirement planning. We believe our products are well positioned to meet this increasing consumer demand. However, consumer behavior may be impacted by increased economic uncertainty, increased unemployment rates, declining equity markets, lowersignificant changes in interest rates and increased volatility of financial markets. In recent years, we have introduced new products to better address changes in consumer demand and targeted distribution channels which meet changes in consumer preferences.

Demographics

We expect demographic trends in the U.S. population, in particular the increase in the number of retirement age individuals, to generate significant demand for our products. In addition, the potential risk to government social safety net programs and shifting of responsibility for retirement planning and financial security from employers and other institutions to employees, highlights the need for individuals to plan for their long-term financial security and will create additional opportunities to generate sustained demand for our products. We believe we are well positioned to capture the increased demand generated by these demographic trends.


99
Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends
Regulatory Policy

We operate in a highly regulated industry. Our insurance company subsidiaries are regulated primarily at the state level, with some policies and products also subject to federal regulation. As such, regulations recently approved or currently under review at both the U.S. federal and state level could impact our business model, including statutory reserve and capital requirements. We anticipate that our ability to respond to changes in regulation and other legislative activity will be critical to our long-term financial performance. In particular, the following could materially impact our business:


80

Department of Labor Fiduciary Advice Rule

The Department of Labor (“DOL”) has issued a new regulatory action (the “Fiduciary Advice Rule”) effective February 16, 2021, that reinstates the text of the DOL’s 1975 investment advice regulation defining what constitutes fiduciary “investment advice” to Employee Retirement Income Security Act ("ERISA") Plansplans and Individual Retirement Accountsindividual retirement accounts ("IRAs") and provides guidance interpreting such regulation. The guidance provided by the DOL broadens the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Tax Code.Federal income tax code. In particular, the DOL states that a recommendation to “roll over” assets from a qualified retirement plan to an IRA, or from an IRA to another IRA, can be considered fiduciary investment advice if provided by someone with an existing relationship with the ERISA Planplan or an IRA owner (or in anticipation of establishing such a relationship). This guidance reverses an earlier DOL interpretation suggesting that roll over advice did not constitute investment advice giving rise to a fiduciary relationship. However, the guidance has been subject to court challenges. In one recent decision issued in February 2023, a U.S. district court in Florida vacated the roll over portion of the guidance, ruling that the DOL exceeded its authority in this area by issuing guidance without going through a rulemaking process. Because we do not engage in directour distribution of annuities including IRA products and annuities sold to ERISA plan participants and to IRA owners,is primarily through intermediaries, we believe that we will have limited exposure to the new Fiduciary Advice Rule. Unlike the DOL’s previous fiduciary rule issued in 2016, compliance with the Fiduciary Advice Rule will not require us or our distributors to provide the disclosures required for exemptive relief under the previous rule. However, we continue to analyze the impact of the Fiduciary Advice Rule, and, while we cannot predict the rule’s impact, it could have an adverse effect on sales of annuities through our distribution partners. The Fiduciary Advice Rule may also lead to changes to our compensation practices and product offerings and increased litigation risk, which could adversely affect our results of operations and financial condition. We may also need to take certain additional actions in order to comply with or assist our distributors in their compliance with the Fiduciary Advice Rule.

Legislative Reforms

Congress approved the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act") on December 20, 2019. The SECURE Act provides individuals with greater access to retirement products. Namely, it makes it easier for 401(k) programs to offer annuities as an investment option by, among other things, creating a statutory safe harbor in ERISA for a retirement plan’s selection of an annuity provider. The SECURE Act represents the largest overhaul to retirement plans in over a decade. On December 29, 2022, SECURE 2.0 Act of 2022 (“SECURE 2.0”) was signed into law as part of a larger omnibus appropriations bill. SECURE 2.0 contains provisions that expand automatic enrollment programs, increase the age of required minimum distributions, and eliminate age requirements for traditional IRA contributions. These changes are intended to expand and increase Americans’ retirement savings. We view these reforms as beneficial to our business model and expect growth opportunities will arise from the new law.laws.

Tax Laws

All of our annuities offer investors the opportunity to benefit from tax deferral. If U.S. tax laws were to change, such that our annuities no longer offer tax-deferred advantages, demand for our products could materially decrease.

81
100

Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations

Consolidated Results of Operations

The following table sets forth, for the periods presented, certain data from our Condensed Consolidated Income Statements. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes:notes elsewhere in this report:

Three Months Ended March 31,
20222021
(in millions)
Revenues
Fee income$1,922 $1,816 
Premiums34 34 
Net investment income720 928 
Net gains (losses) on derivatives and investments1,605 2,706 
Other income20 23 
Total revenues4,301 5,507 
Benefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferrals567 283 
Interest credited on other contract holder funds, net of deferrals206 222 
Interest expense20 6 
Operating costs and other expenses, net of deferrals607 598 
Amortization of deferred acquisition and sales inducement costs515 812 
Total benefits and expenses1,915 1,921 
Pretax income (loss)2,386 3,586 
Income tax expense (benefit)330 586 
Net income (loss)2,056 3,000 
Less: Net income (loss) attributable to noncontrolling interests31 68 
Net income (loss) attributable to Jackson Financial Inc.$2,025 $2,932 
Adjusted Operating Earnings
Net income (loss) attributable to Jackson Financial, Inc.$2,025 $2,932 
Income tax expense (benefit)330 586 
Pretax income (loss) attributable to Jackson Financial Inc2,355 3,518 
Non-operating adjustments (income) loss:
Guaranteed benefits and hedging results:
Fees attributable to guarantee benefit reserves(764)(672)
Net movement in freestanding derivatives1,476 3,031 
Net reserve and embedded derivative movements(1,839)(4,592)
DAC and DSI impact345 696 
Assumption changes— — 
Total guaranteed benefits and hedging results(782)(1,537)
Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative(898)(1,050)
Net investment income on funds withheld assets(260)(291)
Other items3 (7)
Total non-operating adjustments(1,937)(2,885)
Pretax Adjusted Operating Earnings418 633 
Operating income taxes64 65 
Adjusted Operating Earnings$354 $568 

Three Months Ended March 31,
20232022
(in millions)
Revenues
Fee income$1,888 $2,012 
Premiums25 37 
Net investment income:
Net investment income excluding funds withheld assets415 430 
Net investment income on funds withheld assets307 260 
Total net investment income722 690 
Net gains (losses) on derivatives and investments:
Net gains (losses) on derivatives and investments(2,726)(1,566)
Net gains (losses) on funds withheld reinsurance treaties(673)1,028 
Total net gains (losses) on derivatives and investments(3,399)(538)
Other income15 20 
Total revenues(749)2,221 
Benefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferrals228 300 
(Gain) loss from updating future policy benefits cash flow assumptions, net14 15 
Market risk benefits (gains) losses, net(174)(1,907)
Interest credited on other contract holder funds, net of deferrals and amortization285 197 
Interest expense43 20 
Operating costs and other expenses, net of deferrals616 666 
Amortization of deferred acquisition costs293 317 
Total benefits and expenses1,305 (392)
Pretax income (loss)(2,054)2,613 
Income tax expense (benefit)(558)388 
Net income (loss)(1,496)2,225 
Less: Net income (loss) attributable to noncontrolling interests1 31 
Net income (loss) attributable to Jackson Financial Inc.$(1,497)$2,194 
Adjusted Operating Earnings
Net income (loss) attributable to Jackson Financial Inc.$(1,497)$2,194 
Income tax expense (benefit)(558)388 
Pretax income (loss) attributable to Jackson Financial Inc(2,055)2,582 
Non-operating adjustments (income) loss:
Guaranteed benefits and hedging results:
Fees attributable to guarantee benefit reserves(780)(764)
Net movement in freestanding derivatives2,512 1,476 
Market risk benefits (gains) losses, net(174)(1,907)
Net reserve and embedded derivative movements189 40 
Amortization of DAC associated with non-operating items at date of transition to LDTI153 173 
Total guaranteed benefits and net hedging results1,900 (982)
Net realized investment (gains) losses68 130 
Net realized investment (gains) losses on funds withheld assets673 (1,028)
Net investment income on funds withheld assets(307)(260)
Other items23 3 
Total non-operating adjustments2,357 (2,137)
Pretax Adjusted Operating Earnings302 445 
Operating income taxes31 68 
Adjusted Operating Earnings$271 $377 
82101

Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations

Three Months Ended March 31, 20222023 compared to Three Months Ended March 31, 20212022

Pretax Income (Loss)

Our pretax income (loss) decreased by $1,200$4,667 million to a pretax income of $2,386$(2,054) million for the three months ended March 31, 2023, from $2,613 million for the three months ended March 31, 2022 from a pretax income of $3,586 million for the three months ended March 31, 2021 primarily due to:

•$1,1012,861 million decrease in total net gains (losses) on derivatives and investments as shown in the table below and driven by:
Three Months Ended March 31,Three Months Ended March 31,
20222021Variance20232022Variance
(in millions)(in millions)
Net gains (losses) excluding derivatives and funds withheld assetsNet gains (losses) excluding derivatives and funds withheld assets$(130)$153 $(283)Net gains (losses) excluding derivatives and funds withheld assets$(68)$(130)$62 
Net gains (losses) on freestanding derivativesNet gains (losses) on freestanding derivatives(1,441)(2,993)1,552 Net gains (losses) on freestanding derivatives(2,549)(1,440)(1,109)
Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance)Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance)2,148 4,648 (2,500)Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance)(109)4 (113)
Net gains (losses) on derivative instrumentsNet gains (losses) on derivative instruments707 1,655 (948)Net gains (losses) on derivative instruments(2,658)(1,436)(1,222)
Net gains (losses) on funds withheld reinsuranceNet gains (losses) on funds withheld reinsurance1,028 898 130 Net gains (losses) on funds withheld reinsurance(673)1,028 (1,701)
Total net gains (losses) on derivatives and investmentsTotal net gains (losses) on derivatives and investments$1,605 $2,706 $(1,101)Total net gains (losses) on derivatives and investments$(3,399)$(538)$(2,861)

◦Less favorable movements in reserves for guaranteed benefits, driven by lower separate account returns compared to prior year; and
◦Lower benefit due to losses on sales of securities recognized on gains (losses) excluding derivatives and funds withheld assets, compared to prior year gains.

Primarily offset by:

◦LowerHigher freestanding derivative losses as a result of lower losses on our equity derivatives primarily driven by market decreasesincreases in 20222023, compared to market increasesdecreases in the prior year, and lower lossespartially offset by gains within our interest rate related hedge instruments, asreflecting decreases in interest rates, compared to increasing interest rates in the prior year.
◦Lower benefit recognized on funds withheld reinsurance driven by decreasing interest rates during the current quarter compared to rising interest rates in the prior year; and
◦Higher benefit due to gains recognized on funds withheld assets compared to prior year;

•$2841,733 million unfavorable movements in market risk benefits (gains) losses, net, primarily driven by declining interest rates in 2023, compared to increasing rates in the prior year. This was partially offset by positive separate account returns and decreases in implied equity market volatility in 2023, as compared to negative separate account returns and increased volatility in the prior year;
•$124 million decrease in fee income primarily due to lower average separate account values compared to prior year.
•$88 million increase in interest credited on contract holder funds, net of deferrals, primarily due to an increase in flexible annual minimum interest rates on variable annuity general account funds and higher crediting rates on new institutional business.

These decreases were partially offset by:

•$73 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to less favorable movements in reserves on variable annuity guarantees accounted for as insurance liabilities;
•$208 million decrease in net investment income as a result of lower income on limited partnership investments, which are recorded on a one quarter lag,death claims and lower income on debt securities;other policyholder benefits in 2023; and
•$1450 million higher interest expense incurreddecrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based non-deferrable commissions and lower sub-advisor expenses due to lower account values during the current year related to our term loans and senior notes.three months ended March 31, 2023.

This decrease was partially offset by:
102

Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations
•$106 million increase in fee income primarily due to a $14 billion increase in average variable annuity account values stemming from strong separate account performance over the past year;
•$297 million benefit from amortization of deferred acquisition costs and deferred sales inducement costs driven by lower net freestanding and embedded derivative gains in 2022, leading to lower current period gross profits and, therefore, lesser current period amortization.

Income Taxes

Income tax expense decreased $256$946 million to an expensea benefit of $330$558 million for the three months ended March 31, 2022,2023, from an expense of $586$388 million for the three months ended March 31, 2021.2022. The provision for income tax in the current period led to an effective income tax rate of 14%27.2% for the three months ended March 31, 20222023 compared to the 20212022 effective income tax rate of 17%15.0%. The benefit during the three months ended March 31, 2023 increased primarily due to the relationship of the taxable income to the consolidated pre-tax income. Our effective tax rateETR differs from the statutory rate of 21% primarily due to the dividends received deduction and utilization of tax credits. See Note 13 of Notes to Consolidated Financial Statements in our 2022 Annual Report for more information.

83

Segment Results of Operations

We manage our business through three segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. We report certain activities and items that are not included in these segments, including the results of PPM Holdings, Inc., the holding company of PPM, within Corporate and Other. The following tables and discussion represent an overall view of our results of operations for each segment.

Pretax Adjusted Operating Earnings by Segment

The following table summarizes pretax adjusted operating earnings (non-GAAP) from the Company's business segment operations and also provides a reconciliation of the segment measure to net income on a consolidated GAAP basis. Also, see Note 3 of the Notes to Condensed Consolidated Financial Statements for further information:information regarding the calculation of pretax adjusted operating earnings:

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
(in millions)(in millions)
Pretax Adjusted Operating Earnings by Segment:Pretax Adjusted Operating Earnings by Segment:Pretax Adjusted Operating Earnings by Segment:
Retail AnnuitiesRetail Annuities$406 $568 Retail Annuities$356 $425 
Institutional ProductsInstitutional Products23 10 Institutional Products9 23 
Closed Life and Annuity BlocksClosed Life and Annuity Blocks(8)79 Closed Life and Annuity Blocks(20)(9)
Corporate and OtherCorporate and Other(3)(24)Corporate and Other(43)6 
Pretax Adjusted Operating EarningsPretax Adjusted Operating Earnings418 633 Pretax Adjusted Operating Earnings302 445 
Pre-tax reconciling items from adjusted operating income to net income (loss) attributable to Jackson Financial, Inc.:
Pre-tax reconciling items from adjusted operating income to net income (loss) attributable to Jackson Financial Inc.:Pre-tax reconciling items from adjusted operating income to net income (loss) attributable to Jackson Financial Inc.:
Guaranteed benefits and hedging results:Guaranteed benefits and hedging results:Guaranteed benefits and hedging results:
Fees attributable to guarantee benefit reservesFees attributable to guarantee benefit reserves764 672 Fees attributable to guarantee benefit reserves780 764 
Net movement in freestanding derivativesNet movement in freestanding derivatives(1,476)(3,031)Net movement in freestanding derivatives(2,512)(1,476)
Market risk benefits gains (losses), netMarket risk benefits gains (losses), net174 1,907 
Net reserve and embedded derivative movementsNet reserve and embedded derivative movements1,839 4,592 Net reserve and embedded derivative movements(189)(40)
DAC and DSI impact(345)(696)
Assumption changes— — 
Amortization of DAC associated with non-operating items at date of transition to LDTIAmortization of DAC associated with non-operating items at date of transition to LDTI(153)(173)
Total guaranteed benefits and hedging resultsTotal guaranteed benefits and hedging results782 1,537 Total guaranteed benefits and hedging results(1,900)982 
Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative898 1,050 
Net realized investment gains (losses)Net realized investment gains (losses)(68)(130)
Net realized investment gains (losses) on funds withheld assetsNet realized investment gains (losses) on funds withheld assets(673)1,028 
Net investment income on funds withheld assetsNet investment income on funds withheld assets260 291 Net investment income on funds withheld assets307 260 
Other itemsOther items(3)7 Other items(23)(3)
Total pre-tax reconciling itemsTotal pre-tax reconciling items1,937 2,885 Total pre-tax reconciling items(2,357)2,137 
Pretax income (loss) attributable to Jackson Financial, Inc.2,355 3,518 
Pretax income (loss) attributable to Jackson Financial Inc.Pretax income (loss) attributable to Jackson Financial Inc.(2,055)2,582 
Income tax expense (benefit)Income tax expense (benefit)330 586 Income tax expense (benefit)(558)388 
Net income (loss) attributable to Jackson Financial, Inc.$2,025 $2,932 
Net income (loss) attributable to Jackson Financial Inc.Net income (loss) attributable to Jackson Financial Inc.$(1,497)$2,194 


84103

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations
Retail Annuities

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Retail Annuities segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes.notes appearing elsewhere in this report:

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
(in millions)(in millions)
Retail Annuities:Retail Annuities:Retail Annuities:
Operating RevenuesOperating RevenuesOperating Revenues
Fee incomeFee income$1,016 $995 Fee income$975 $1,108 
PremiumsPremiums4 3 
Net investment incomeNet investment income118 205 Net investment income136 114 
Income on operating derivatives11 14 
Income (loss) on operating derivativesIncome (loss) on operating derivatives(10)11 
Other incomeOther income11 12 Other income9 11 
Total Operating RevenuesTotal Operating Revenues1,156 1,226 Total Operating Revenues1,114 1,247 
Operating Benefits and ExpensesOperating Benefits and ExpensesOperating Benefits and Expenses
Death, other policy benefits and change in policy reserves16 6 
Interest credited on other contract holder funds68 67 
Death, other policy benefits and change in policy reserves, net of deferralsDeath, other policy benefits and change in policy reserves, net of deferrals(15)32 
(Gain) loss from updating future policy benefits cash flow assumptions, net(Gain) loss from updating future policy benefits cash flow assumptions, net(2)(3)
Interest credited on other contract holder funds, net of deferrals and amortizationInterest credited on other contract holder funds, net of deferrals and amortization98 57 
Interest expenseInterest expense5 5 Interest expense17 5 
Operating costs and other expenses, net of deferralsOperating costs and other expenses, net of deferrals504 476 Operating costs and other expenses, net of deferrals522 592 
Amortization of deferred acquisition costs and deferred sales inducement costs157 104 
Amortization of deferred acquisition costsAmortization of deferred acquisition costs138 139 
Total Operating Benefits and ExpensesTotal Operating Benefits and Expenses750 658 Total Operating Benefits and Expenses758 822 
Pretax Adjusted Operating EarningsPretax Adjusted Operating Earnings$406 $568 Pretax Adjusted Operating Earnings$356 $425 

The following table summarizes a roll forwardroll-forward of activity affecting account value for our Retail Annuities segment as offor the datesperiods indicated:

Three Months Ended March 31,
20222021
(in millions)
Retail Annuities Account Value:
Balance as of beginning of period$284,379 $256,741 
Premiums and deposits4,842 4,772 
Surrenders, withdrawals, and benefits(5,235)(5,641)
Net flows(393)(869)
Credited Interest/Investment performance(16,613)8,880 
Policy Charges and other(726)(641)
Balance as of end of period266,647 264,111 
Ceded reinsurance(24,380)(26,297)
Balance as of end of period, net of ceded reinsurance$242,267 $237,814 

Three Months Ended March 31,
20232022
(in millions)
Retail Annuities Account Value:
Balance as of beginning of period$209,967 $260,135 
Premiums and deposits3,197 4,852 
Surrenders, withdrawals, and benefits(4,422)(4,671)
Net flows(1,225)181 
Investment performance10,528 (16,727)
Change in value of equity option108 (4)
Interest credited99 56 
Policy charges and other(707)(690)
Balance as of end of period, net of ceded reinsurance218,770 242,951 
Ceded reinsurance20,952 24,519 
Balance as of end of period, gross of reinsurance$239,722 $267,470 

85104

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations
Three Months Ended March 31, 20222023 compared to Three Months Ended March 31, 20212022

Pretax Adjusted Operating Earnings

Pretax Adjusted Operating Earningsadjusted operating earnings decreased $162$69 million to $406$356 million for the three months ended March 31, 2023 from $425 million for the three months ended March 31, 2022 primarily due to:

•$133 million decrease in fee income primarily due to lower average separate account values compared to prior year;
•$21 million decrease in income (loss) on operating derivatives primarily due to the increase in floating rates in 2023; and
•$19 million decrease in spread income primarily due to $41 million higher interest credited driven by resetting minimum interest crediting rates on variable annuity fixed rate options in the first quarter of 2023, partially offset by $22 million higher investment income.

These decreases were partially offset by:

•$70 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based non-deferrable commissions and lower sub-advisor expenses due to lower account values during the three months ended March 31, 2023, and lower incentive compensation expenses in 2023; and
•$46 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from $568updating future policy benefits cash flow assumptions, primarily due to lower other policyholder benefits in 2023.

Account Value

Retail annuities account value, net of reinsurance, decreased $24.2 billion between periods primarily due to negative variable annuity separate account returns driven by unfavorable market performance in 2022, as well as negative net flows over the period, primarily from variable annuities.

Institutional Products

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Institutional Products segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report:

Three Months Ended March 31,
20232022
(in millions)
Institutional Products:
Operating Revenues
Net investment income$102 $64 
Income (loss) on operating derivatives(12)(1)
Total Operating Revenues90 63 
Operating Benefits and Expenses
Interest credited on other contract holder funds, net of deferrals and amortization76 39 
Interest expense4 — 
Operating costs and other expenses, net of deferrals1 1 
Total Operating Benefits and Expenses81 40 
Pretax Adjusted Operating Earnings$9 $23 


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Item 2 | Management’s Discussion and Analysis | Segment Results of Operations
The following table summarizes a roll-forward of activity affecting account value for our Institutional Products segment for the periods indicated:

Three Months Ended March 31,
20232022
(in millions)
Institutional Products:
Balance as of beginning of period$9,019 $8,830 
Premiums and deposits649 975 
Surrenders, withdrawals, and benefits(1,040)(659)
Net flows(391)316 
Credited Interest76 39 
Policy Charges and other(13)(12)
Balance as of end of period$8,691 $9,173 

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased $14 million to $9 million for the three months ended March 31, 20212023 from $23 million for the three months ended March 31, 2022 primarily due to increased interest credited on contract holder funds due to higher crediting rates on new business and increased losses on operating derivatives, partially offset by higher investment income.

Account Value

Institutional product account value decreased from $9,173 million at March 31, 2022 to $8,691 million at March 31, 2023. The decline in account value was driven by continued maturities of the existing contracts and funding agreements, partially offset by new issuances.

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Item 2 | Management’s Discussion and Analysis | Segment Results of Operations

Closed Life and Annuity Blocks

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Closed Block Life and Annuity Blocks segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report:

Three Months Ended March 31,
20232022
(in millions)
Closed Life and Annuity Blocks:
Operating Revenues
Fee income$117 $121 
Premiums23 37 
Net investment income177 189 
Income (loss) on operating derivatives(10)15 
Other income4 8 
Total Operating Revenues311 370 
Operating Benefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferrals163 225 
(Gain) loss from updating future policy benefits cash flow assumptions, net16 18 
Interest credited on other contract holder funds, net of deferrals and amortization111 101 
Operating costs and other expenses, net of deferrals39 32 
Amortization of deferred acquisition costs2 3 
Total Operating Benefits and Expenses331 379 
Pretax Adjusted Operating Earnings$(20)$(9)

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased $11 million to $(20) million for the three months ended March 31, 2023 from $(9) million for the three months ended March 31, 2022 primarily due to:


•$8725 million decrease in income on operating derivatives primarily due to the increase in floating rates during 2023.
•$12 million decrease in net investment income primarily due to lower levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2021;
•$53 million increase in amortization of deferred acquisition costs and deferred sales inducement costs primarily due to lower separate account returns, which led to decreased expected future gross profits, and therefore higher current period amortization during 2022; and
•$28 million increase in operating costs and other expenses, net of deferrals, primarily due to higher incentive compensation expenses in 2022.

These decreases were partially offset by:

•$2164 million increasedecrease in fee incomedeath, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to a $14 billion increase in average variable annuity account values stemming from strong separate account performance over the past year.

Account Value

Retail annuities account value, gross of reinsurance, increased $2.5 billion between periods primarily due to positive variable annuity separate account growth in the last three quarters of 2021 and first quarter of 2022 driven by favorable market performance relative to prior year. This was partially offset by negative net flows in 2022, primarily from our reinsured fixed and fixed index annuity block.

Institutional Products

The following table sets forth, for the periods presented, certain data underlying the results for our Institutional Products segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes.

Three Months Ended March 31,
20222021
(in millions)
Institutional Products:
Operating Revenues
Net investment income$64 $64 
Income on operating derivatives(1)— 
Other income— — 
Total Operating Revenues63 64 
Operating Benefits and Expenses
Interest credited on other contract holder funds39 52 
Interest expense— 1 
Operating costs and other expenses, net of deferrals1 1 
Total Operating Benefits and Expenses40 54 
Pretax Adjusted Operating Earnings$23 $10 

lower death claims.

86107

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations
The following table summarizes a roll forward of account value for our Institutional Products segment as of the dates indicated:

Three Months Ended March 31,
20222021
(in millions)
Institutional Products:
Balance as of beginning of period$8,830 $11,138 
Premiums and deposits975 — 
Surrenders, withdrawals, and benefits(659)(545)
Net flows316 (545)
Credited Interest39 53 
Policy Charges and other(12)(67)
Balance as of end of period$9,173 $10,579 

Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021

Pretax Adjusted Operating Earnings

Pretax Adjusted Operating Earnings increased $13 million to $23 million for the three months ended March 31, 2022 from $10 million for the three months ended March 31, 2021 primarily due to a decrease in interest credited resulting from a reduction in institutional product account values during the year.

Account Value

Institutional product account value decreased from $10,579 million at March 31, 2021 to $9,173 million at March 31, 2022. The decline in account value was driven by continued maturities of the existing contracts and funding agreements, partially offset by new issuances in 2022.


Closed Life and Annuity Blocks

The following table sets forth, for the periods presented, certain data underlying the results for our Closed Life and Annuity Blocks segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes.

Three Months Ended March 31,
20222021
(in millions)
Closed Life and Annuity Blocks:
Operating Revenues
Fee income$121 $125 
Premiums37 38 
Net investment income196 257 
Income on operating derivatives15 20 
Other income8 9 
Total Operating Revenues377 449 
Operating Benefits and Expenses
Death, other policy benefits and change in policy reserves242 221 
Interest credited on other contract holder funds99 103 
Operating costs and other expenses, net of deferrals40 41 
Amortization of deferred acquisition costs and deferred sales inducement costs4 5 
Total Operating Benefits and Expenses385 370 
Pretax Adjusted Operating Earnings$(8)$79 

87

Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021

Pretax Adjusted Operating Earnings

Pretax Adjusted Operating Earnings decreased $87 million to $(8) million for the three months ended March 31, 2022 from $79 million for the three months ended March 31, 2021 primarily due to:

•$61 million decrease in net investment income primarily due to lower levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2021; and
•$21 million increase in death, other policy benefit and change in policy reserves primarily as a result of less favorable reserve movements in 2022 compared to 2021.

Corporate and Other

Corporate and Other includes the operations of PPM Holdings, Inc., the holding company of PPM, and unallocated corporate revenue and expenses, as well as certain eliminations and consolidation adjustments. The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for Corporate and Other. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes.notes appearing elsewhere in this report:

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
(in millions)(in millions)
Corporate and Other:Corporate and Other:Corporate and Other:
Operating RevenuesOperating RevenuesOperating Revenues
Fee incomeFee income$18 $21 Fee income$13 $16 
Net investment incomeNet investment income53 12 Net investment income22 34 
Income on operating derivatives10 4 
Income (loss) on operating derivativesIncome (loss) on operating derivatives(4)10 
Other incomeOther income1 2 Other income2 1 
Total Operating RevenuesTotal Operating Revenues82 39 Total Operating Revenues33 61 
Operating Benefits and ExpensesOperating Benefits and ExpensesOperating Benefits and Expenses
Interest expenseInterest expense15 — Interest expense22 15 
Operating costs and other expenses, net of deferralsOperating costs and other expenses, net of deferrals61 56 Operating costs and other expenses, net of deferrals54 40 
Amortization of deferred acquisition costs and deferred sales inducement costs9 7 
Total Operating Benefits and ExpensesTotal Operating Benefits and Expenses85 63 Total Operating Benefits and Expenses76 55 
Pretax Adjusted Operating EarningsPretax Adjusted Operating Earnings$(3)$(24)Pretax Adjusted Operating Earnings$(43)$6 


Three Months Ended March 31, 20222023 compared to Three Months Ended March 31, 20212022

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $21decreased $49 million to $(3)$(43) million for the three months ended March 31, 2023 from $6 million for the three months ended March 31, 2022 from $(24) million for the three months ended March 31, 2021 primarily due to the following:

•$14 million decrease in income on operating derivatives primarily due to the increase in floating rates in 2023;
•$4114 million increase in operating costs and other expenses, net of deferrals, primarily due to higher deferred compensation expenses in 2023; and
•$12 million decrease in net investment income primarily due to higher current quarter net investment income resulting from an increased excess capital position, as thelower levels of investment income on that excess capital remainsprivate equity and other limited partnership investments, when compared to the same period in the Corporate and Other segment.

This increase was partially offset by:

2022.
•$157 million increase inhigher interest expense primarily related to our senior notes and term loans.notes.

See Note 13 - Long-Term Debt of Notes to Condensed Consolidated Financial Statements

.

88108

Item 2 | Management’s Discussion and Analysis | Investments

Investments

Our investment portfolio primarily consists of fixed-income securities and loans, primarily publicly-traded corporate and government bonds, private securities and loans, asset-backed securities and mortgage loans. Asset-backed securities include mortgage-backed and other structured securities. The fair value of these and our other invested assets fluctuates depending on market and other general economic conditions and the interest rate environment and could be adversely impacted by other economic factors.

Investment Strategy

Our overall investment strategy is to maintain a diversified and largely investment grade fixed income portfolio that is capital efficient, achieves risk-adjusted returns that support competitive pricing for our products, generates profitable growth of our business and maintains adequate liquidity to support our obligations. The investments within our investment portfolio are primarily managed by PPM, our wholly-owned registered investment advisor. Our investment strategy benefits from PPM’s ability to originate investments directly, as well as participate in transactions originated by banks, investment banks, commercial finance companies and other intermediaries. Certain investments held in funds withheld accounts for reinsurance transactions are managed by Apollo Insurance Solutions Group LP ("Apollo"), an Athene affiliate, see Note 8 - Reinsurance of Notes to Condensed Consolidated Financial Statements for further details. We may also use other third-party investment managers for certain niche asset classes. As of March 31, 2022,2023, Apollo Insurance Solutions Group LP managed $23.5$19.0 billion of cash and investments and other third-party investment managers representedmanaged approximately $187$186 million of investments.

Our investment program seeks to generate a competitive rate of return on our invested assets to support the profitable growth of our business, while maintaining investment portfolio allocations within the company’sCompany’s risk tolerance. This means seeking to maximizemaximizing risk-adjusted return within the context of a largely fixed income portfolio while also managing exposure to downside risk in a stressed environment, regulatory and rating agency capital models, overall portfolio yield, diversification and correlation with other investments and company exposures.

Our Investment Committee has specified a target strategic asset allocation (“SAA”) that is designed to deliver the highest expected return within a defined risk tolerance while meeting other important objectives such as those mentioned in the prior paragraph. The fixed income portion of the SAA is assessed relative to a customized index of public corporate bonds that represents a close approximation of the maturity profile of our liabilities and a credit quality mix that that is consistent with our risk tolerance. PPM’s objective is to outperform this index on a number of measures including portfolio yield, total return and capital loss due to downgrades and defaults. While PPM has access to a broad universe of potential investments, we believe grounding the investment program with a customized public corporate index that can be easily tracked and monitored helps guide PPM in meeting the risk and return expectations and assists with performance evaluation.

Recognizing the trade-offs between the level of risk, required capital, liquidity and investment return, the largest allocation within our investment portfolio is to investment grade fixed income securities. As previously mentioned, our investment manager accesses a broad universe of potential investments to construct the investment portfolio and takes into accountconsiders the benefits of diversification across various sectors, collateral types and asset classes. To this end, our SAA and investment portfolio includes allocations to public and private corporate bonds (both investment grade and high yield), mortgage loans, structured securities, private equity and U.S. Treasury securities. These U.S. Treasury securities, while lower yielding than other alternatives, provide a higher level of liquidity and play a role in managing our interest rate exposure.

As of March 31, 20222023 and December 31, 2021,2022, we had total investments of $69.3$66.9 billion and $74.2$65.9 billion, respectively.


89109

Item 2 | Management’s Discussion and Analysis | Investments
Portfolio Composition

The following table summarizes the carrying values of our investments:

March 31, 2022December 31, 2021March 31, 2023December 31, 2022
Investments excluding Funds WithheldFunds WithheldTotalInvestments excluding Funds WithheldFunds WithheldTotalInvestments excluding Funds WithheldFunds WithheldTotalInvestments excluding Funds WithheldFunds WithheldTotal
(in millions)(in millions)
Debt Securities, available-for-sale, net of allowance for credit lossesDebt Securities, available-for-sale, net of allowance for credit losses$29,642 $17,128 $46,770 $32,453 $19,094 $51,547 Debt Securities, available-for-sale, net of allowance for credit losses$30,510 $13,264 $43,774 $28,867 $13,622 $42,489 
Debt Securities, at fair value under fair value optionDebt Securities, at fair value under fair value option1,628 158 1,786 1,547 164 1,711 Debt Securities, at fair value under fair value option2,093 162 2,255 2,014 159 2,173 
Debt securities, trading, at fair valueDebt securities, trading, at fair value115 — 115 117 — 117 Debt securities, trading, at fair value101 — 101 100 — 100 
Equity securities, at fair valueEquity securities, at fair value162 99 261 163 116 279 Equity securities, at fair value152 73 225 316 77 393 
Mortgage loans, net of allowance for credit lossesMortgage loans, net of allowance for credit losses6,764 4,666 11,430 6,743 4,739 11,482 Mortgage loans, net of allowance for credit losses6,907 4,004 10,911 6,840 4,127 10,967 
Mortgage loans, at fair value under fair value optionMortgage loans, at fair value under fair value option— 190 190 — — — Mortgage loans, at fair value under fair value option— 480 480 — 582 582 
Policy loansPolicy loans973 3,490 4,463 992 3,483 4,475 Policy loans936 3,441 4,377 942 3,435 4,377 
Freestanding derivative instrumentsFreestanding derivative instruments875 51 926 1,375 42 1,417 Freestanding derivative instruments993 58 1,051 1,192 78 1,270 
Other invested assetsOther invested assets2,611 793 3,404 2,484 715 3,199 Other invested assets2,890 821 3,711 2,802 793 3,595 
Total investmentsTotal investments$42,770 $26,575 $69,345 $45,874 $28,353 $74,227 Total investments$44,582 $22,303 $66,885 $43,073 $22,873 $65,946 

Available-for-sale debt securities decreasedincreased to $46,770$43,774 million at March 31, 20222023 from $51,547$42,489 million at December 31, 2021,2022, primarily due to sales, consistent with the decrease in underlying policy liabilities, and aan decrease in net unrealized gains.losses. The amortized cost of available-for-sale debt securities available-for-sale, decreasedincreased from $51,206$48,798 million as of December 31, 20212022 to $50,119$49,026 million as of March 31, 2022.2023. Further, net unrealized gains on these assets decreased from a net unrealized gain of $2,178losses were $6,286 million as of December 31, 20212022 compared to a net unrealized loss of $1,416$5,223 million as of March 31, 2022.2023.

Other Invested Assets

In June 2021, we entered into an arrangement to sell $420 million of limited partnership investments, of which $236 million and $168 million were sold in the second and third quarter of 2021, respectively, and the remainder was sold in January 2022. We expect to reinvest in new LPs as attractive opportunities become available. The increase in Other Invested Assets from December 31, 20212022 to March 31, 20222023 primarily resulted from additional private equity funding in the increased valuations of limited partnership investments.current period.

90

Debt Securities

At March 31, 20222023 and December 31, 2021,2022, the amortized cost, allowance for credit loss, gross unrealized gains and losses, and fair value and allowance for credit loss of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions):

March 31, 2022Amortized
Cost		Allowance for Credit LossGross
Unrealized
Gains		Gross Unrealized
Losses		Fair
Value
U.S. government securities$3,730 $— $20 $479 $3,271 
Other government securities1,563 6 51 65 1,543 
Corporate securities
Utilities5,912 — 226 150 5,988 
Energy3,096 20 76 136 3,016 
Banking1,885 — 17 89 1,813 
Healthcare3,162 — 56 178 3,040 
Finance/Insurance4,591 2 58 235 4,412 
Technology/Telecom2,346 — 33 120 2,259 
Consumer goods2,619 — 30 166 2,483 
Industrial1,909 — 41 65 1,885 
Capital goods2,138 — 32 71 2,099 
Real estate1,734 — 12 69 1,677 
Media1,275 — 32 62 1,245 
Transportation1,598 — 28 63 1,563 
Retail1,316 — 29 68 1,277 
Other (1)
2,132 — 30 53 2,109 
Total Corporate Securities35,713 22 700 1,525 34,866 
Residential mortgage-backed484 2 35 19 498 
Commercial mortgage-backed1,724 — 6 44 1,686 
Other asset-backed securities6,905 2 34 130 6,807 
Total Debt Securities$50,119 $32 $846 $2,262 $48,671 
(1) No single remaining industry exceeds 3% of the portfolio.
110
Item 2 | Management’s Discussion and Analysis | Investments
March 31, 2023Amortized
Cost		Allowance for Credit LossGross
Unrealized
Gains		Gross Unrealized
Losses		Fair
Value
U.S. government securities$5,775 $— $1 $883 $4,893 
Other government securities1,712 3 2 204 1,507 
Corporate securities
Utilities6,008 — 38 574 5,472 
Energy3,060 1 13 321 2,751 
Banking2,228 15 5 208 2,010 
Healthcare3,167 — 16 370 2,813 
Finance/Insurance4,518 4 14 535 3,993 
Technology/Telecom2,383 1 6 243 2,145 
Consumer goods2,517 — 17 288 2,246 
Industrial1,761 — 10 142 1,629 
Capital goods2,074 — 8 152 1,930 
Real estate1,763 — 1 213 1,551 
Media1,243 — 3 142 1,104 
Transportation1,549 — 6 184 1,371 
Retail1,299 — 7 148 1,158 
Other (1)
2,117 — 6 140 1,983 
Total Corporate Securities35,687 21 150 3,660 32,156 
Residential mortgage-backed466 5 14 47 428 
Commercial mortgage-backed1,768 — — 174 1,594 
Other asset-backed securities5,974 — 9 431 5,552 
Total Debt Securities$51,382 $29 $176 $5,399 $46,130 
(1) No single remaining industry exceeds 3% of the portfolio.

December 31, 2022Amortized
Cost		Allowance for Credit LossGross
Unrealized
Gains		Gross Unrealized
Losses		Fair
Value
U.S. government securities$6,192 $— $1 $1,008 $5,185 
Other government securities1,719 2 1 251 1,467 
Corporate securities
Utilities5,893 — 27 695 5,225 
Energy3,006 10 7 390 2,613 
Banking1,994 — 2 234 1,762 
Healthcare2,956 — 8 439 2,525 
Finance/Insurance4,497 4 8 621 3,880 
Technology/Telecom2,333 1 2 296 2,038 
Consumer goods2,463 — 10 378 2,095 
Industrial1,675 — 8 173 1,510 
Capital goods1,982 — 3 196 1,789 
Real estate1,723 — 1 225 1,499 
Media1,230 — 1 175 1,056 
Transportation1,576 — 3 214 1,365 
Retail1,312 — 5 182 1,135 
Other (1)
2,056 — 1 178 1,879 
Total Corporate Securities34,696 15 86 4,396 30,371 
Residential mortgage-backed510 6 19 59 464 
Commercial mortgage-backed1,821 — — 183 1,638 
Other asset-backed securities6,133 — 8 504 5,637 
Total Debt Securities$51,071 $23 $115 $6,401 $44,762 
(1) No single remaining industry exceeds 3% of the portfolio.

91111

Item 2 | Management’s Discussion and Analysis | Investments
December 31, 2021Amortized
Cost		Allowance for Credit LossGross
Unrealized
Gains		Gross Unrealized
Losses		Fair
Value
U.S. government securities$4,525 $— $97 $301 $4,321 
Other government securities1,489 — 147 17 1,619 
Corporate securities
Utilities6,069 — 671 25 6,715 
Energy2,872 — 222 16 3,078 
Banking1,944 — 79 10 2,013 
Healthcare3,196 — 175 21 3,350 
Finance/Insurance4,299 — 228 47 4,480 
Technology/Telecom2,376 — 123 26 2,473 
Consumer goods2,525 — 123 38 2,610 
Industrial1,996 — 118 10 2,104 
Capital goods2,206 — 134 8 2,332 
Real estate1,805 — 82 11 1,876 
Media1,187 — 84 19 1,252 
Transportation1,789 — 105 13 1,881 
Retail1,289 — 75 13 1,351 
Other (1)
2,217 — 134 5 2,346 
Total Corporate Securities35,770 — 2,353 262 37,861 
Residential mortgage-backed528 2 46 3 569 
Commercial mortgage-backed1,968 — 76 6 2,038 
Other asset-backed securities6,926 7 71 23 6,967 
Total Debt Securities$51,206 $9 $2,790 $612 $53,375 
(1) No single remaining industry exceeds 3% of the portfolio.

Debt Securities Credit Quality

The following tables set forth the composition of the fair value of debt securities, including both those held as available-for-sale and for trading, as classified by rating categories as assigned by nationally recognized statistical rating organizations (“NRSRO”), the NAIC or, if not rated by such organizations, our consolidated investment advisor, PPM. The Company uses the second lowest rating by an NRSRO when NRSRO ratings are not equivalent and, for purposes of the table, if not otherwise rated by a NRSRO, the NAIC rating of a security is converted to an equivalent NRSRO-style rating.

Percent of Total Debt
Securities Carrying Value
March 31,December 31,
Investment Rating20222021
AAA12.2 %14.5 %
AA9.9 %9.6 %
A29.4 %28.5 %
BBB41.4 %40.9 %
Investment grade92.9 %93.5 %
BB3.9 %3.6 %
B and below3.2 %2.9 %
Below investment grade7.1 %6.5 %
Total debt securities100.0 %100.0 %
92

Unrealized Losses

The following tables summarize the number of securities, fair value and the related amount of gross unrealized losses aggregated by investment category and length of time that individual debt securities have been in a continuous loss position (dollars in millions):

March 31, 2022December 31, 2021
Less than 12 monthsLess than 12 months
GrossFair
Value		GrossFair
Value
Unrealized# ofUnrealized# of
LossessecuritiesLossessecurities
U.S. government securities$80 $431 18 $2 $107 16 
Other government securities65 538 57 17 252 23 
Public utilities109 2,037 240 17 721 93 
Corporate securities1,013 13,488 1,673 180 6,343 728 
Residential mortgage-backed15 266 194 3 174 109 
Commercial mortgage-backed35 1,105 156 5 314 37 
Other asset-backed securities127 4,198 490 22 3,224 338 
Total temporarily impaired securities$1,444 $22,063 2,828 $246 $11,135 1,344 
12 months or longer12 months or longer
GrossFair
Value		GrossFair
Value
Unrealized# ofUnrealized# of
LossessecuritiesLossessecurities
U.S. government securities$399 $1,982 9 $299 $3,190 7 
Other government securities— 9 4 — 4 2 
Public utilities41 198 28 7 99 8 
Corporate securities362 1,967 223 58 661 69 
Residential mortgage-backed4 45 38 — 11 12 
Commercial mortgage-backed9 77 6 1 30 3 
Other asset-backed securities3 47 8 1 11 3 
Total temporarily impaired securities$818 $4,325 316 $366 $4,006 104 
TotalTotal
GrossFair
Value		GrossFair
Value
Unrealized# ofUnrealized# of
LossessecuritiesLossessecurities
U.S. government securities$479 $2,413 23 $301 $3,297 23 
Other government securities65 547 60 17 256 25 
Public utilities150 2,235 261 24 820 101 
Corporate securities (1)
1,375 15,455 1,823 238 7,004 797 
Residential mortgage-backed19 311 231 3 185 121 
Commercial mortgage-backed44 1,182 161 6 344 40 
Other asset-backed securities130 4,245 498 23 3,235 341 
Total temporarily impaired securities$2,262 $26,388 3,057 $612 $15,141 1,448 
(1) Certain corporate securities contain multiple lots and fit the criteria of both aging groups.

The increase in rates on U.S. Treasury securities and the widening credit spreads of investment grade corporate securities resulted in the reduction in fair values and increase in unrealized losses during the three months ended March 31, 2022. Of the $1,650 million total increase in unrealized losses and the $11,247 million additional fair value on securities with an associated unrealized loss, $852 million and $4,185 million, respectively, are associated with assets subject to funds withheld agreements.

93

Evaluation of Available-For-Sale Debt Securities

See Note 4 - Investments of Notes to Condensed Consolidated Financial Statements for information about how we evaluate our available-for-sale debt securities for credit loss.

The following table summarizes net gains (losses) on derivatives and investments (in millions):

Three Months Ended March 31,
20222021
Available-for-sale securities
    Realized gains on sale$24 $25 
    Realized losses on sale(178)(6)
    Credit loss income (expense)— 9 
Credit loss income (expense) on mortgage loans12 59 
Other (1)
12 66 
Net gains (losses) excluding derivatives and funds withheld assets(130)153 
Net gains (losses) on derivative instruments707 1,655 
Net gains (losses) on funds withheld reinsurance treaties1,028 898 
     Total net gains (losses) on derivatives and investments$1,605 $2,706 
(1) Includes the foreign currency gain or loss related to foreign denominated mortgage loans and trust instruments supporting funding agreements.

Equity Securities

Equity securities consist of investments in common and preferred stock holdings and mutual fund investments. Common and preferred stock investments generally arise out of previous private equity investments or other settlements rather than as direct investments. Mutual fund investments typically represent investments made in our own mutual funds to seed those structures for external issuance at a later date. The following table summarizes our holdings:

March 31,December 31,March 31,December 31,
2022202120232022
(in millions)(in millions)
Common StockCommon Stock$80 $78 Common Stock$76 $82 
Preferred StockPreferred Stock151 168 Preferred Stock119 133 
Mutual FundsMutual Funds30 33 Mutual Funds30 178 
TotalTotal$261 $279 Total$225 $393 

Mortgage Loans

Commercial mortgage loans of $10.6$10.2 billion and $10.5$10.2 billion at March 31, 20222023 and December 31, 2021,2022, respectively, are reported net of an allowance for credit losses of $78$139 million and $85$91 million at each date, respectively. At March 31, 2022,2023, commercial mortgage loans were collateralized by properties located in 3837 states, the District of Columbia, and Europe. Residential mortgage loans of $1,039$1,146 million and $939$1308 million at March 31, 20222023 and December 31, 2021,2022, respectively, are reported net of an allowance for credit losses of $6$7 million and $9$4 million at each date, respectively. LoansResidential mortgage loans were collateralized by properties located in 50 states, the District of Columbia, Mexico, and Europe.

94

The table below presents the carrying value, net of allowance of credit loss, of our mortgage loans by property type:

March 31,December 31,March 31,December 31,
2022202120232022
(in millions)(in millions)
Commercial:Commercial:Commercial:
ApartmentApartment$3,875 $3,755 Apartment$3,513 $3,558 
HotelHotel1,049 1,054 Hotel1,006 1,015 
OfficeOffice1,891 1,889 Office1,732 1,795 
RetailRetail2,049 2,104 Retail2,063 2,085 
WarehouseWarehouse1,717 1,741 Warehouse1,931 1,788 
Total CommercialTotal Commercial$10,581 $10,543 Total Commercial$10,245 $10,241 
ResidentialResidential1,039 939 Residential1,146 1,308 
TotalTotal$11,620 $11,482 Total$11,391 $11,549 


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Item 2 | Management’s Discussion and Analysis | Investments
The table below presents the carrying value, net of allowance for credit loss, of our mortgage loans by region:

March 31,December 31,March 31,December 31,
2022202120232022
(in millions)(in millions)
United States:United States:
East North CentralEast North Central$1,182 $1,184 East North Central$1,175 $1,116 
East South CentralEast South Central490 491 East South Central536 546 
Middle AtlanticMiddle Atlantic1,566 1,558 Middle Atlantic1,651 1,677 
MountainMountain671 688 Mountain580 627 
New EnglandNew England454 452 New England367 371 
PacificPacific3,023 2,897 Pacific2,682 2,850 
South AtlanticSouth Atlantic2,189 2,295 South Atlantic2,339 2,313 
West North CentralWest North Central548 552 West North Central589 572 
West South CentralWest South Central938 829 West South Central943 920 
Total United StatesTotal United States10,862 10,992 
ForeignForeign559 536 Foreign529 557 
TotalTotal$11,620 $11,482 Total$11,391 $11,549 

The following table provides information about the credit quality of our mortgage loans:

March 31,December 31,March 31,December 31,
2022202120232022
(in millions)(in millions)
Commercial mortgage loansCommercial mortgage loansCommercial mortgage loans
Loan to value ratios:Loan to value ratios:Loan to value ratios:
Less than 70%Less than 70%$9,927 $9,819 Less than 70%$9,623 $9,586 
70% - 80%70% - 80%600 670 70% - 80%393 424 
80% - 100%80% - 100%44 44 80% - 100%196 197 
Greater than 100%Greater than 100%10 10 Greater than 100%33 34 
TotalTotal10,581 10,543 Total10,245 10,241 
Residential mortgage loansResidential mortgage loansResidential mortgage loans
PerformingPerforming897 727 Performing1,072 1,230 
Nonperforming (1)
Nonperforming (1)
142 212 
Nonperforming (1)
74 78 
TotalTotal1,039 939 Total1,146 1,308 
Total mortgage loansTotal mortgage loans$11,620 $11,482 Total mortgage loans$11,391 $11,549 

(1) As of March 31, 20222023 and December 31, 2021,2022, includes $119$41 million and $202$41 million of loans purchased when the loans were greater than 90 days delinquent and $17$11 million and $5$12 million of loans in process of foreclosure, respectively, and are supported with insurance or other guarantees provided by various governmental programs.

95

The following table provides a summary of the allowance for credit losses related to our mortgage loans:

March 31,March 31,
2022202120232022
(in millions)(in millions)
Balance at beginning of period$94 $179 
Balance at beginning of yearBalance at beginning of year$95 $94 
Charge offs, net of recoveries— — 
Provision (release)(1)Provision (release)(1)(10)(65)Provision (release)(1)51 (10)
Balance at end of periodBalance at end of period$84 $114 Balance at end of period$146 $84 
(1) At March 31, 2023, the $51 million increase in the allowance for credit loss resulted primarily from a single mezzanine loan experiencing stress around payoff, or refinance, of the loan for which the Company continues to assess options with the lending group and borrower.

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Item 2 | Management’s Discussion and Analysis | Investments
The Company’s mortgage loans that are current and in good standing are accruing interest. Interest is not accrued on loans greater than 90 days delinquent and in process of foreclosure, when deemed uncollectible. Delinquency status is determined from the date of the first missed contractual payment.

At March 31, 2022,2023, there was $19$15 million of recorded investment, $20$16 million of unpaid principal balance, no related loan allowance, $7 million of average recorded investment, and $1 million investment income recognized on impaired residential mortgage loans.

At December 31, 2021, there was $6 million of recorded investment, $7 million of unpaid principal balance, no related loan allowance, $2$16 million of average recorded investment, and no investment income recognized on impaired residential mortgage loans.

At December 31, 2022, there was $15 million of recorded investment, $16 million of unpaid principal balance, no related loan allowance, $18 million of average recorded investment, and no investment income recognized on impaired residential mortgage loans.

96

Derivative Instruments

The following table presents the aggregate contractual or notional amounts and the fair values of our freestanding and embedded derivatives instruments (in millions):

March 31, 2023
March 31, 2022
Contractual/AssetsLiabilitiesNetContractual/AssetsLiabilitiesNet
NotionalFairFairFair ValueNotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Amount (1)
ValueValueAsset (Liability)
Freestanding derivativesFreestanding derivativesFreestanding derivatives
Cross-currency swapsCross-currency swaps$1,784 $44 $55 $(11)Cross-currency swaps$1,854 $75 $123 $(48)
Equity index call optionsEquity index call options30,500 391 — 391 Equity index call options17,500 247 — 247 
Equity index futures (2)
Equity index futures (2)
20,220 — — — 
Equity index futures (2)
16,328 — — — 
Equity index put optionsEquity index put options35,500 290 — 290 Equity index put options43,500 643 — 643 
Interest rate swapsInterest rate swaps7,728 143 — 143 Interest rate swaps7,728 7 148 (141)
Interest rate swaps - cleared (2)
Interest rate swaps - cleared (2)
1,500 — — — 
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptionsPut-swaptions22,000 — 343 (343)Put-swaptions22,000 — 1,157 (1,157)
Treasury futures (2)
16 — — — 
Interest rate futures (2)
Interest rate futures (2)
81,365 — — — 
Total return swapsTotal return swaps1,318 — 61 (61)
Total freestanding derivativesTotal freestanding derivatives119,248 868 398 470 Total freestanding derivatives193,093 972 1,489 (517)
Embedded derivativesEmbedded derivativesEmbedded derivatives
VA embedded derivatives (3)
N/A— 452 (452)
FIA embedded derivatives (4)
N/A— 1,299 (1,299)
RILA embedded derivatives (4)
N/A— 16 (16)
Fixed index annuity embedded derivatives (3)
Fixed index annuity embedded derivatives (3)
N/A— 963 (963)
Registered index linked annuity embedded derivatives (3)
Registered index linked annuity embedded derivatives (3)
N/A— 421 (421)
Total embedded derivativesTotal embedded derivativesN/A— 1,767 (1,767)Total embedded derivativesN/A— 1,384 (1,384)
Derivatives related to funds withheld under reinsurance treatiesDerivatives related to funds withheld under reinsurance treatiesDerivatives related to funds withheld under reinsurance treaties
Cross-currency swapsCross-currency swaps158 13 1 12 Cross-currency swaps158 23 1 22 
Cross-currency forwardsCross-currency forwards1,296 45 6 39 Cross-currency forwards1,417 56 20 36 
Funds withheld embedded derivative (5)(4)
Funds withheld embedded derivative (5)(4)
N/A1,161 — 1,161 
Funds withheld embedded derivative (5)(4)
N/A2,788 — 2,788 
Total derivatives related to funds withheld under reinsurance treatiesTotal derivatives related to funds withheld under reinsurance treaties1,454 1,219 7 1,212 Total derivatives related to funds withheld under reinsurance treaties1,575 2,867 21 2,846 
TotalTotal$120,702 $2,087 $2,172 $(85)Total$194,668 $3,839 $2,894 $945 

(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The non-performance risk adjustment is included in the balance above.
(4) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.





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Item 2 | Management’s Discussion and Analysis | Investments
December 31, 2022
Contractual/AssetsLiabilitiesNet
NotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Freestanding derivatives
Cross-currency swaps$1,825 $73 $104 $(31)
Equity index call options17,500 106 — 106 
Equity index futures (2)
19,760 — — — 
Equity index put options30,500 958 — 958 
Interest rate swaps7,728 5 231 (226)
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptions25,000 — 1,711 (1,711)
Interest rate futures (2)
105,261 — — — 
Total return swaps739 31 — 31 
Total freestanding derivatives209,813 1,173 2,046 (873)
Embedded derivatives
Fixed index annuity embedded derivatives (3)
N/A— 931 (931)
Registered index linked annuity embedded derivatives (3)
N/A— 205 (205)
Total embedded derivativesN/A— 1,136 (1,136)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps158 23 1 22 
Cross-currency forwards1,490 74 18 56 
Funds withheld embedded derivative (4)
N/A3,158 — 3,158 
Total derivatives related to funds withheld under reinsurance treaties1,648 3,255 19 3,236 
Total$211,461 $4,428 $3,201 $1,227 
(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within reserves for future policy benefits and claims payableother contract holder funds on the Condensed Consolidated Balance Sheets. The nonperformancenon-performance risk adjustment is included in the balance above.
(4)Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above.
(5) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

97

December 31, 2021
Contractual/AssetsLiabilitiesNet
NotionalFairFairFair Value
Amount (1)
ValueValueAsset (Liability)
Freestanding derivatives
Cross-currency swaps$1,767 $55 $35 $20 
Equity index call options21,000 606 — 606 
Equity index futures (2)
18,258 — — — 
Equity index put options27,500 150 — 150 
Interest rate swaps7,728 430 — 430 
Interest rate swaps - cleared (2)
1,500 — — — 
Put-swaptions19,000 133 — 133 
Treasury futures (2)
912 — — — 
Total freestanding derivatives97,665 1,374 35 1,339 
Embedded derivatives
VA embedded derivatives (3)
N/A— 2,626 (2,626)
FIA embedded derivatives (4)
N/A— 1,439 (1,439)
RILA embedded derivatives (4)
N/A— 6 (6)
Total embedded derivativesN/A— 4,071 (4,071)
Derivatives related to funds withheld under reinsurance treaties
Cross-currency swaps158 10 1 9 
Cross-currency forwards1,119 33 5 28 
Funds withheld embedded derivative (5)
N/A— 120 (120)
Total derivatives related to funds withheld under reinsurance treaties1,277 43 126 (83)
Total$98,942 $1,417 $4,232 $(2,815)
(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions.
(2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades.
(3) Included within reserves for future policy benefits and claims payable on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above.
(4) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above.
(5) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.
98

Investment Income

Our sources of net investment income are as follows (in millions):

Three Months Ended March 31,
20222021
Debt securities (1)
$273 $323 
Equity securities1 — 
Mortgage loans73 82 
Policy loans17 19 
Limited partnerships108 243 
Other investment income1 4 
Total investment income excluding funds withheld assets473 671 
Net investment income on funds withheld assets260 291 
Investment expenses:
Derivative trading commission(1)(1)
Depreciation on real estate(3)(3)
Expenses related to consolidated entities (2)
(21)(8)
Other investment expenses (3)
12 (22)
Total investment expenses(13)(34)
Net investment income$720 $928 
(1) Includes unrealized gains and losses on trading securities and includes $(10) million and $38 million as of March 31, 2022 and 2021, respectively, related to the change in fair value for securities carried under the fair value option.
(2) Includes management fees, administrative fees, legal fees, and other expenses related to the consolidation of certain investments.
(3) Includes interest expense and market appreciation on deferred compensation; investment software expense, custodial fees, and other bank fees; institutional product issuance related expenses; and other expenses.

Evaluation of Invested Assets

We perform regular evaluations of our invested assets. On a monthly basis, management identifies those investments that may require additional monitoring and carefully reviews the carrying value of such investments to determine whether specific investments should be placed on a non-accrual status and to determine if an allowance for credit loss is required. In making these reviews, management principally considers the adequacy of any collateral, compliance with contractual covenants, the borrower’s recent financial performance, news reports and other externally generated information concerning the issuer’s affairs. In the case of publicly traded bonds, management also considers market value quotations, where available. For mortgage loans, management generally considers information concerning the mortgaged property, and, among other things,including factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral. For investments in partnerships, management reviews the financial statements and other information provided by the general partners.

In determination ofTo determine an allowance for credit loss, we consider a security’s forecasted cash flows as well as the severity of depressed fair values. Investment income is not accrued on securities in default and otherwise where the collection is uncertain. Subsequent receipts of interest on such securities are generally used to reduce the cost basis of the securities. The provisions for impairment on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest on mortgage loans is generally suspended when principal or interest payments on mortgage loans are past due more than 90 days. Interest is then accounted for on a cash basis.
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Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities

Policy and Contract Liabilities

We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments. Amounts for actuarial liabilities are computed and reported on the Condensed Consolidated Financial Statements in conformity with GAAP. For more details on Policyholder Liabilities, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” included in our 20212022 Annual Report.”

As an insurance company, a substantial portion of our profits are derived from fee income and the invested assets backing our policy and contract liabilities, which includes separate account liabilities, reserves for future policy benefits and claims payable and other contract holder funds. As of March 31, 2022,2023, 89% of our policy and contract liabilities were in our Retail Annuities segment, 3% were in our Institutional Products segment and 8% were in our Closed Life and Annuity Blocks segment.

The table below represents a breakdown of our policy and contract liabilities:

March 31, 2022Separate AccountsReserves for future policy benefitsOther contract holder fundsTotal
March 31, 2023March 31, 2023Separate AccountsReserves for future policy benefitsOther contract holder fundsMarket Risk BenefitsTotal
(in millions)(in millions)
Variable AnnuitiesVariable Annuities$231,113 $2,403 $10,367 $243,883 Variable Annuities$203,990 $— $9,927 $318 $214,235 
Registered Index Linked Annuities— — 305 305 
RILA1
RILA1
— — 2,501 4 2,505 
Fixed AnnuitiesFixed Annuities— 2 12,940 12,942 Fixed Annuities— — 11,082 2 11,084 
Fixed Index Annuities— 8 12,835 12,843 
Fixed Index Annuities2
Fixed Index Annuities2
— — 11,375 26 11,401 
Payout AnnuitiesPayout Annuities— — 1,389 1,389 Payout Annuities— 1,067 847 — 1,914 
Other AnnuitiesOther Annuities304 — — — 304 
Total Retail AnnuitiesTotal Retail Annuities231,113 2,413 37,836 271,362 Total Retail Annuities204,294 1,067 35,732 350 241,443 
Total Institutional ProductsTotal Institutional Products— — 9,173 9,173 Total Institutional Products— — 8,691 — 8,691 
Traditional Life— 4,699 4,115 8,814 
Interest-sensitive Life85 1,693 7,323 9,101 
Group Payout Annuities— 4,819 — 4,819 
Other Annuities— — 1,396 1,396 
Total Closed Life and Annuity BlocksTotal Closed Life and Annuity Blocks85 11,211 12,834 24,130 Total Closed Life and Annuity Blocks72 9,737 12,495 6 22,310 
Total Policy and Contract LiabilitiesTotal Policy and Contract Liabilities231,198 13,624 59,843 304,665 Total Policy and Contract Liabilities204,366 10,804 56,918 356 272,444 
Claims payable and otherClaims payable and other— 1,943 — 1,943 Claims payable and other— 1,565 176 — 1,741 
TotalTotal$231,198 $15,567 $59,843 $306,608 Total$204,366 $12,369 $57,094 $356 $274,185 
December 31, 2021Separate AccountsReserves for future policy benefitsOther contract holder fundsTotal
(in millions)
Variable Annuities$248,859 4,330 10,030 263,219 
Registered Index Linked Annuities— — 110 110 
Fixed Annuities— 2 13,172 13,174 
Fixed Index Annuities— 50 13,161 13,211 
Payout Annuities— — 1,399 1,399 
Total Retail Annuities248,859 4,382 37,872 291,113 
Total Institutional Products— — 8,830 8,830 
Traditional Life— 4,762 4,161 8,923 
Interest-sensitive Life90 1,722 7,410 9,222 
Group Payout Annuities— 4,895 — 4,895 
Other Annuities— — 1,416 1,416 
Total Closed Life and Annuity Blocks90 11,379 12,987 24,456 
Total Policy and Contract Liabilities248,949 15,761 59,689 324,399 
Claims payable and other— 1,868 — 1,868 
Total$248,949 $17,629 $59,689 $326,267 

December 31, 2022Separate AccountsReserves for future policy benefitsOther contract holder fundsMarket Risk BenefitsTotal
(in millions)
Variable Annuities$195,550 $— $10,259 $767 $206,576 
RILA1
— — 1,875 5 1,880 
Fixed Annuities— — 11,696 — 11,696 
Fixed Index Annuities2
— — 11,787 17 11,804 
Payout Annuities— 1,042 837 — 1,879 
Other Annuities285 — — — 285 
Total Retail Annuities195,835 1,042 36,454 789 234,120 
Total Institutional Products— — 9,019 — 9,019 
Total Closed Life and Annuity Blocks71 9,726 12,534 8 22,339 
Total Policy and Contract Liabilities195,906 10,768 58,007 797 265,478 
Claims payable and other— 1,550 183 — 1,733 
Total$195,906 $12,318 $58,190 $797 $267,211 

(1) Includes the embedded derivative liabilities in other contract holder funds related to RILA of $421 million and $205 million at March 31, 2023 and December 31, 2022, respectively.
(2) Includes the embedded derivative liabilities related to fixed index annuity in other contract holder funds of $963 million and $931 million at March 31, 2023 and December 31, 2022, respectively.
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Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities

As of March 31, 2022, $231.22023, $204.4 billion or 76%75% of our policy and contract liabilities were backed by separate accountsaccount assets. These separate account assets backed reserves primarily related to our variable annuities. Separate account liabilities are fully funded by cash flows from the customer’s corresponding separate account assets and are set equal to the fair value of such invested assets. We generate revenue on our separate account liabilities primarily from asset-based fee income. Separate account assets and associated liabilities are subject to variability driven by the performance of the underlying investments, which are exposed to fluctuations in equity markets and bond fund valuations. As a result, revenue derived from asset-based fee income is similarly subject to variability in line with the variability of the underlying separate account assets.

As of March 31, 2022, $48.82023, $47.0 billion or 16% of our policy and contract liabilities were backed by our investment portfolio and $24.6$21.1 billion reinsured by Athene, were backed by funds withheld assets. Our variable annuity fixed account option, variable annuity guaranteed benefit and other reserves, our RILA and fixed annuities and fixed index annuities reserves, not reinsured, our Institutional Products segment reserves, as well as our Closed Life and Annuity Blocks segment reserves, were primarily backed by our investment portfolio. As of March 31, 2022, our general account policy and contract liabilities, net of those ceded to Athene, were composed of 1% for registered index linked annuities, 5% for fixed index annuities and fixed deferred and payout annuities, 19% for Institutional Products segment, 20% for fixed account option variable annuities, 6% for guaranteed benefit and other variable annuity reserves, and a 49% Closed Life and Annuity Block segment reserves. As of March 31, 2022, 39% of our fixed annuity and fixed index annuity policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers. As of March 31, 2022,2023, 100% of our RILA policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers. We have the discretion, subject to contractual limitations and minimums, to reset the crediting terms on the majority of our fixed index annuities and fixed annuities. As of March 31, 2022,2023, 93% of fixed annuity, fixed-indexed annuity, and the fixed accounts of RILA and variable annuity correspond to crediting rates that are at the guaranteed minimum crediting rate.

LiabilitiesSee Note 9, Note 10, Note 11 and Note 12 of Notes to Condensed Consolidated Financial Statements for other contract holder funds are policy account balancesadditional discussion on interest-sensitive life insurance, fixed annuities, fixed index annuities, RILA and variable annuity or variable life insurance contract allocations to fixed fund options. These account balance liabilities are equal to the sum of deposits, plus interest credited, less charges and withdrawals.

We establish reservesaccounting policies around Reserves for future policy benefits and claims payable, under insurance policies using methodologies consistent with U.S. GAAP. Reserves for insurance policies are generally equal to the present value of future expected benefits to be paid, reduced by the present value of future expected revenue. The assumptions used in establishing reserves are generally based on our experience, industry benchmarking or other factors, as applicable. Annually, or as circumstances warrant, we conduct a comprehensive review of our actuarial assumptions, and update those assumptions when appropriate. The principal assumptions used in the establishment of reserves for future policy benefits are policy lapse, mortality, benefit utilization and withdrawals, investment returns, and expenses. Generally, we do not expect trends that impact our assumptions to change significantly in the short-term and, to the extent these trends may change, we expect such changes to be gradual over the long-term.

For non–life-contingent components of Guaranteed Minimum Withdrawal Benefits ("GMWB") features available in our variable annuities, the guaranteed benefits are accounted for as embedded derivatives, with fair values calculated as the present value of expected future guaranteed benefit payments to contract holders less the present value of assessed rider fees attributable to the embedded derivative feature. In accordance with U.S. GAAP, the fair values of these guaranteed benefit features are based on assumptions a market participant would use in valuing these embedded derivatives. Changes in the fair value of the embedded derivatives are recorded through a benefit or charge to current period earnings. Movements in the fair value of the embedded derivatives are typically in the opposite direction relative to primary market risks. Specifically, downward movements in equity market levels reduceOther contract holder funds, Separate account valueassets and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, increasing the fair value liability. Similarly, downward movements in interest rates lower the assumed future market growthliabilities and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, increasing the fair value liability. Downward movements in interest rates also lower the discount rates used in the calculation of the fair value liability associated with higher projected future guaranteed benefit payments, which increases the fair value liability.

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For reserves related to the life-contingent components of guaranteed benefit features available in our variable annuities, fixed index annuities and RILA, we calculate the change in reserves by applying a “benefit ratio” to total assessments received in the period. The benefit ratio is determined by dividing the present value of total expected benefit payments by the present value of total expected assessments, primarily fees based on account value or benefit base, over the life of the contract. The level and direction of the change in reserves will vary over time based on the benefit ratio and the level of assessments associated with the variable annuity, fixed index annuity, or RILA. These reserves typically move in the opposite direction relative to primary market risks. Specifically, downward movements in equity market levels will reduce contract holder account value and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, which increases the reserve.

For traditional life insurance and payout annuities, reserves for future policy benefits are measured using assumptions determined as of the issuance date or acquisition date with provisions for the risk of adverse deviation, as appropriate. These assumptions are not unlocked unless a premium deficiency exists. At least annually, we perform premium deficiency tests using best estimate assumptions as of the testing date without provision for adverse deviation. If the liabilities determined based on these best estimate assumptions are greater than the net reserves (i.e., U.S. GAAP reserves net of any DAC or reinsurance), the existing net reserves are adjusted by first reducing the DAC or DSI by the amount of the deficiency (or to zero) through a charge to current period earnings. If the deficiency is more than these asset balances, we increase the reserves by the excess through a charge to current period earnings. If a premium deficiency is recognized, the assumptions as of the premium deficiency test date are locked in and used in subsequent reserve measurements, and the net reserves continue to be subject to premium deficiency testing. In a sustained low interest rate environment, there is generally an increased likelihood that the liabilities determined based on best estimate assumptions will be greater than the net reserves.MRBs.

Liquidity and Capital Resources

Liquidity is our ability to generate sufficient cash flows to meet the cash requirements of operating, investing and financing activities. Capital refers to our long-term financial resources available to support the business operations and contribute to future growth. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and the alternate sources of liquidity and capital described herein.

The discussion below describes our liquidity and capital resources for the three months ended March 31, 20222023 and 2021.2022.

Cash Flows

The following table presents a summary of our cash flow activity for the periods set forth below:

Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
(in millions)(in millions)
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities$860 $1,344 Net cash provided by (used in) operating activities$1,461 $833 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(202)(1,500)Net cash provided by (used in) investing activities(2,882)(202)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(609)(290)Net cash provided by (used in) financing activities(1,099)(582)
Net increase (decrease) in cash, cash equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and restricted cash49 (446)Net increase (decrease) in cash, cash equivalents, and restricted cash(2,520)49 
Cash, cash equivalents, and restricted cash at beginning of periodCash, cash equivalents, and restricted cash at beginning of period2,631 2,019 Cash, cash equivalents, and restricted cash at beginning of period4,301 2,631 
Total cash, cash equivalents, and restricted cash at end of periodTotal cash, cash equivalents, and restricted cash at end of period$2,680 $1,573 Total cash, cash equivalents, and restricted cash at end of period$1,781 $2,680 

Cash flows provided byfrom Operating Activities

The principal operating cash inflows from our insurance activities come from insurance premiums, fees charged on our products and net investment income. The principal operating cash outflows are the result of annuity and life insurance benefits, interest credited on other contract holder funds, operating expenses and income tax, as well as interest expense. The primary liquidity concern with respect to these cash flows is the risk of early contract holder and policyholder benefit payments.

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Cash flows provided by (used in) operating activities decreased $484increased $628 million to $860$1,461 million duringfor the three months ended March 31, 20222023 from $1,344$833 million duringfor the three months ended March 31, 2021.2022. This decrease in cash provided by operating activities was primarily due to the timing of settlements of receivables and payables as well as lower net income in 2022 driven by decreases in total net gains on derivatives and investments, compared to 2021.acquisition costs.

Cash flows provided by (used in)from Investing Activities

The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments and settlements of freestanding derivatives. It is not unusual to have a net cash outflow from investing activities because cash inflows from insurance operations are typically reinvested to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors or market disruptions that might impact the timing of investment related cash flows as well as derivative collateral needs.needs, which could result in material liquidity needs for our insurance subsidiaries.

Cash flows provided by (used in) investing activities increased $1,298decreased $2,680 million to $(2,882) million during the three months ended March 31, 2023 from $(202) million during the three months ended March 31, 2022 from $(1,500) million during the three months ended March 31, 2021.2022. This increasedecrease was primarily due to decreased outflows related to our hedging program for derivative settlements and collateral predominantly resulting from market increases in 2022 compared to 2021.

2023.
Cash flows provided by (used in)from Financing Activities

The principal cash inflows from our financing activities come from deposits of funds associated with policyholder account balances, issuance of debt,securities and lending of securities. The principal cash outflows come from withdrawals associated with policyholder account balances, repayment of debt, and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal.

Cash flows provided by (used in) financing activities decreased $319$517 million to $(609)$(1,099) million during the three months ended March 31, 20222023 from $(290)$(582) million forduring the three months ended March 31, 2021.2022. This decrease was primarily due to increased outflows relateddecreased deposits driven by lower variable annuity and institutional sales in 2023 compared to the settlement of our repurchase agreements,2022, partially offset by increased salesinflows from our issuance of our institutional products during 2022 compared to 2021.preferred stock in 2023.

Statutory Capital

Our insurance company subsidiaries have statutory surplus above the level needed to meet current regulatory requirements. RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action. RBC is based on a formula that incorporates both factor-based components (applied to various asset, premium, claim, expense and statutory reserve items) and model-based components. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. As of March 31, 2022,2023, our insurance companies were well in excess of the minimum required capital levels. Jackson is also subject to risk-based capital guidelines that provide a method to measure the adjusted capital that a life insurance company should have for regulatory purposes, taking into account the risk characteristics of Jackson’s investments and products.

Holding Company Liquidity

As a holding company with no business operations of its own, Jackson Financial primarily derives cash flows from dividends and interest payments from its insurance subsidiaries. These principal sources of liquidity are expected to be supplemented by cash and short-term investments held by Jackson Financial and access to bank lines of credit and the capital markets. We intend to maintain a minimum amount of cash and cash equivalentshighly liquid securities at Jackson Financial adequate to fund two years of holding company fixed expenses.net expenses, which may change over time as we refinance existing debt or make changes to our debt and capital structure, and is currently targeted at $250 million. The main uses of liquidity for Jackson Financial are interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to shareholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries. Our principal sources of liquidity and our anticipated capital position are described in the following paragraphs.
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Any declaration of cash dividends or stock repurchases will be at the discretion of JFI’s Board of Directors and will depend on our financial condition, earnings, liquidity and capital requirements, regulatory constraints, level of indebtedness, contractual restrictions with respect to paying cash dividends or repurchasing stock, restrictions imposed by Delaware law, general business conditions and any other factors that JFI’s Board of Directors deems relevant in making any such determination. Therefore, there can be no assurance that we will pay any cash dividends to holders of our common stock or approve any further increase in the existing, or any new, stock repurchase program, or as to the amount of any such cash dividends or stock repurchases.

Delaware law requires that dividends be paid and stock repurchases made only out of “surplus,” which is defined as the fair market value of our net assets, minus our stated capital; or out of the current or the immediately preceding year’s earnings. JFI is a holding company and has no direct operations. All of our business operations are conducted through our subsidiaries. Any dividends we pay or stock repurchases we make will depend upon the funds legally available for distribution, including dividends or distributions from our subsidiaries to us. The states in which our insurance subsidiaries are domiciled impose certain restrictions on our insurance subsidiaries’ ability to pay dividends to their parent companies. These restrictions are based in part on the prior year’s statutory income and surplus, as well as earned surplus. Such restrictions, or any future restrictions adopted by the states in which our insurance subsidiaries are domiciled, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable by our subsidiaries without affirmative approval of state regulatory authorities. See “Risk Factors—Risks relating to Financing and Liquidity - As a holding company, Jackson Financial depends on the ability of its subsidiaries to pay dividends and make other distributions to meet its obligations and liquidity needs, including servicing debt, dividend payments and stock repurchases.”

On March 13, 2023, the Company issued and sold 22,000,000 depositary shares (the “Depositary Shares”), each representing a 1/1,000th fractional interest in a share of the Company’s Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A, $25,000 liquidation preference per share (equivalent to $25 per Depositary Share), with a 5-year dividend rate reset period and noncumulative dividends (the “Series A Preferred Stock”). After underwriting discounts and expenses, we received net proceeds of approximately $533 million. See Note 20 - Equity of the Notes to Condensed Consolidated Financial Statements for more information.

103During the first quarter of 2023, we paid a cash dividend of $0.62 per share on JFI's common stock totaling $54 million. On May 8, 2023, our Board of Directors approved a second quarter cash dividend on JFI's common stock of $0.62 per share, payable on June 15, 2023 to shareholders of record on June 1, 2023. The Company also announced the declaration of a cash dividend of $0.59444 per depositary share, each representing a 1/1,000th interest in a share of Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A. The dividend will be payable on June 30, 2023, to shareholders of record at the close of business on June 1, 2023.

During the first quarter of 2023, we repurchased a total of 1,721,737 shares of common stock for an aggregate purchase price of $70 million, which were funded with cash on hand.

See Note 20 to Condensed Consolidated Financial Statements in this Report for further information on dividends to shareholders and share repurchases.

Distributions from our Insurance Company Subsidiaries

The ability of our insurance company subsidiaries to pay dividends is limited by applicable laws and regulations of the jurisdictions where such subsidiaries are domiciled as well as agreements entered into with regulators. These laws and regulations require, among other things, our insurance company subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay.

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Subject to these limitations, our insurance company subsidiaries are permitted to pay ordinary dividends based on calculations specified under insurance laws of the relevant state of domicile, subject to prior notification to the appropriate regulatory agency. Any distributions above the amount permitted by statute in any twelve-month period are considered to be extraordinary dividends, and the approval of the appropriate regulator is required prior to payment. In Michigan, the Director of the Michigan Department of Insurance and Financial Services (the Michigan Director of Insurance) may limit, or not permit, the payment of dividends from either Jackson or Brooke Life, Jackson's direct parent company, if it determines that the surplus of either of these subsidiaries is not reasonable in relation to their outstanding liabilities and is not adequate to meet their financial needs, as required by the Michigan insurance law.Insurance Code of 1956. Unless otherwise approved by the Michigan Director of Insurance, dividends may only be paid from earned surplus. Also, surplus note arrangements and interest payments must be approved by the Michigan Director of Insurance and such interest payments to related parties reduce the otherwise calculated ordinary dividend capacity for that period. In New York, all dividends require approval from the New York State Department of Financial Services.NYSDFS.

For 2022,2023, Jackson and Brooke Life have total ordinary dividend capacity, based on 20212022 statutory capital and surplus and statutory net gain from operations, subject to the availability of earned surplus, of nil$3,688 million and $514$501 million, respectively. Brooke Life, as the sole owner of our other insurance company subsidiaries, including Jackson and Jackson National Life NY, is the direct recipient of any dividend payments from those subsidiaries and must make dividend payments to its ultimate parent company, Jackson Financial, in order for any funds from our insurance company subsidiaries to reach Jackson Financial. As such, Jackson Financial’s ability to receive dividend payments from our insurance company subsidiaries is effectively limited by Brooke Life’s ability to make dividend payments to Jackson Financial.

On March 1, 2022,2023, Jackson paid a $450 million ordinary dividend and remitted a $600$150 million return of capital to its parent company, Brooke Life. Brooke Life subsequently paid a $510$360 million ordinary dividend and remitted a $150 million return of capital to its ultimate parent, Jackson Financial. In addition, for the quarter ended March 31, 2023, Brooke Life also paid $45 million of interest associated with the $2 billion surplus note between Brooke Life and Jackson Finance, LLC ("Jackson Finance"), a subsidiary of Jackson Financial.

The maximum distribution permitted by law or contract is not necessarily indicative of an insurer’s actual ability to pay such distributions, which may be constrained by business and other considerations, such as imposition of withholding tax, the impact of such distributions on surplus, which could affect the insurer’s credit and financial strength ratings or competitive position, the ability to generate new annuity sales and the ability to pay future dividends or make other distributions. Further, state insurance laws and regulations require that the statutory surplus of our insurance subsidiaries following any dividend or distribution must be reasonable in relation to their outstanding liabilities and adequate for the insurance subsidiaries’ financial needs. Along with solvency regulations, another primary consideration in determining the amount of capital used for dividends is the level of capital needed to maintain desired financial strength ratings from rating agencies, including A.M. Best, S&P, Moody’s and Fitch. Given recent economic events that have affected the insurance industry, both regulators and rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for insurance company subsidiaries. We believe our insurance company subsidiaries have sufficient statutory capital and surplus to maintain their desired financial strength rating.

Insurance Company Subsidiaries’ Liquidity

The liquidity requirements for our insurance company subsidiaries primarily relate to the liabilities associated with their insurance and reinsurance activities, operating expenses and income taxes. Liabilities arising from insurance and reinsurance activities include the payment of policyholder benefits when due, cash payments in connection with policy surrenders and withdrawals and policy loans.

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Liquidity requirements are principally for purchases of new investments, management of derivative related margin requirements, repayment of principal and interest on debt, payments of interest on surplus notes, funding of insurance product liabilities including payments for policy benefits, surrenders, maturities and new policy loans, funding of expenses including payment of commissions, operating expenses and taxes. As of March 31, 2022,2023, Jackson’s outstanding surplus notes and bank debt included $6358 million of bank loans from the Federal Home Loan Bank of Indianapolis ("FHLBI"), collateralized by mortgage-related securities and mortgage loans and $250 million of surplus notes maturing in 2027.

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Significant increases in interest rates could create sudden increases in surrender and withdrawal requests by customers and contract holders and result in increased liquidity requirements at our insurance company subsidiaries. Significant increases in interest rates or equity markets may also result in higher margin and collateral requirements on our derivative portfolio. The derivative contracts are an integral part of our risk management program, especially for the management of our variable annuities program, and are managed in accordance with our hedging and risk management program. Our cash flows associated with collateral received from counterparties and posted with counterparties fluctuates with changes in the market value of the underlying derivative contract and/or the market value of the collateral. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. Collateral posting requirements can result in material liquidity needs for our insurance subsidiaries. As of March 31, 2023, we were in a net collateral payable position of $545 million compared to $689 million as of December 31, 2022.

Other factors that are not directly related to interest rates can also give rise to an increase in liquidity requirements, including, changes in ratings from rating agencies, general policyholder concerns relating to the life insurance industry (e.g., the unexpected default of a large, unrelated life insurer) and competition from other products, including non-insurance products such as mutual funds, certificates of deposit and newly developed investment products. Most of the life insurance and annuity products Jackson offers permit the policyholder or contract holder to withdraw or borrow funds or surrender cash values. As of March 31, 2022,2023, approximately half of Jackson’s general account reserves are either not surrenderable, included surrender charges greater than 5%, or included market value adjustments to discourage early withdrawal of policy and contract funds.

The liquidity sources for our insurance company subsidiaries are their cash, short-term investments, sales of publicly traded bonds, insurance premiums, fees charged on ourtheir products, sales of annuities and institutional products, investment income, commercial repurchase agreements and utilization of a short-term borrowing facility with the FHLBI.

Jackson uses a variety of asset liability management techniques to provide for the orderly provision of cash flow from investments and other sources as policies and contracts mature in accordance with their normal terms. Jackson’s principal sources of liquidity to meet unexpected cash outflows associated with sudden and severe increases in surrenders and withdrawals or benefit payments are its portfolio of liquid assets and its net operating cash flows. As of March 31, 2022,2023, the portfolio of cash, short-term investments and privately and publicly traded securities and equities, which are unencumbered and unrestricted to sale, amounted to $25.4$22.6 billion.

Our Indebtedness

Senior Notes

On June 8, 2022, the Company issued $750 million aggregate principal amount of its senior unsecured notes, consisting of $400 million aggregate principal amount of 5.170% Senior Notes due June 8, 2027 and $350 million aggregate principal amount of 5.670% Senior Notes due June 8, 2032. The net proceeds of these notes were used, together with cash on hand, to repay the Company’s $750 million aggregate principal amount term loan due February 2023.

On November 23, 2021, the Company issued $1.6 billion aggregate principal amount of its senior unsecured notes consisting of $600 million aggregate principal amount of 1.1%1.125% Senior Notes due November 22, 2023, (the “2023 Senior Notes”), $500 million aggregate principal amount of 3.1%3.125% Senior Notes due November 23, 2031, (the “2031 Senior Notes”) and $500 million aggregate principal amount of 4.0%4.000% Senior Notes due November 23, 2051 (the “2051 Senior Notes” and, together with the 2023 Senior Notes and the 2031 Senior Notes, the “Senior Notes”). The proceeds of the Senior Notes were used, together with cash on hand, to repay the Company’s $1.6 billion aggregate principal amount of senior unsecured delayed draw term loan facility that was due to mature in May 2022 (the “2022 DDTL Facility”), as described below.2051.

Term Loans
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Revolving Credit and Short-Term Borrowing Facilities

On February 22, 2021, we and24, 2023, the Company entered into a revolving credit facility (the "2023 Revolving Credit Facility") with a syndicate of banks entered into aand Bank of America, N.A., as Administrative Agent. The 2023 Revolving Credit Facility replaced an existing revolving credit agreement consistingfacility that was due to expire in February 2024. The 2023 Revolving Credit Facility provides for borrowings for working capital and other general corporate purposes under aggregate commitments of a $1.0 billion, with a sub-limit of $500 million available for letters of credit. The 2023 Revolving Credit Facility and a credit agreement consisting of a $1.7 billion senior unsecured delayed draw term loan facility that, as subsequently amended, wasfurther provides for the ability to mature in May 2022, and a $1.0 billion senior unsecured delayed draw term loan facility that matures in February 2023 (the "2023 DDTL Facility"). When referringrequest, subject to the Credit Facilities, the associated credit agreements and thecustomary terms and conditions, thereof,an increase in each casecommitments thereunder by up to an additional $500 million. Commitments under the 2023 Revolving Credit Facility terminate on February 24, 2028. Interest on borrowings may be based on a “Base Rate” (as defined in this report, we are referringthe 2023 Revolving Credit Facility) plus an adder ranging from 0.125% to 0.875%, or a “Term SOFR Rate” (as defined in the 2023 Revolving Credit Facility) plus an adder ranging from 1.125% to 1.875%. The applicable adder is based upon the ratings assigned to the Credit Facilities, the credit agreements and their terms and conditions as amended.Company’s senior, unsecured, non-credit enhanced debt.

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The credit agreements foragreement governing the 2023 Revolving Credit Facilities containFacility contains a number of customary representations and warranties, affirmative and negative covenants and events of default (including a change of control provision). Such covenants, among other things, restrict, subject to certain exceptions, our ability to pay dividends and distributions or repurchase common shares if a default or event of default has occurred and is continuing (with such negative covenant dropping away if our long term unsecured senior, non-credit enhanced, debt ratings are either (x) BBB+ or better from S&P or (y) Baa1 or better from Moody’s), incur additional indebtedness, create liens on our or our subsidiaries’ assets and make fundamental changes. The credit agreements for the Credit Facilities containagreement contains financial maintenance covenants, including a minimum adjusted consolidated net worth test of no less than 70% of our adjusted consolidated net worth as of September 30, 2022 (plus (to the dateextent positive) or minus (to the extent negative) 70% of the Demerger (taking into accountimpact on such adjusted consolidated net worth resulting from the application of a one-time transition adjustment for the LDTI accounting change for insurance contracts, and plus 50% of the proceedsaggregate amount of any additionalincrease in adjusted consolidated net worth resulting from equity issuances)issuances by the Company and its consolidated subsidiaries after September 30, 2022) and a maximum consolidated indebtedness to total capitalization ratio test not to exceed 35%. The credit agreement for the DDTL Facilities also contains a covenant that requires we maintain minimum long-term unsecured senior, non-credit enhanced, debt ratings of at least (x) BBB- from S&P and (y) Baa3 from Moody’s. We were in compliance with these covenants at March 31, 2022.2023.

Jackson is a party to an Uncommitted Money Market Line Credit Agreement dated April 6, 2023 among Jackson, Jackson Financial, and Société Générale. This agreement is an uncommitted short-term cash advance facility that provides an additional form of liquidity to Jackson and to Jackson Financial. The Revolving Facility provides for borrowings to be available for working capital and other general corporate purposesaggregate borrowing capacity under aggregate commitments of $1.0 billion, with a sublimit ofthe agreement is $500 million available for lettersand each cash advance request must be at least $100 thousand. The interest rate is set by the lender at the time of credit. The Revolving Facility further providesthe borrowing and is fixed for the abilityduration of the advance. Jackson and Jackson Financial are jointly and severally liable to request, subject to customary terms and conditions, an increase in commitments thereunder by an additional $500 million. Commitmentsrepay any advance under the Revolving Facility terminateagreement, which must be repaid prior to the last day of the quarter in which the advance was drawn. As of May 9, the Company has not borrowed on February 22, 2024.this line of credit.

On September 10, 2021, we borrowed an aggregate principal amount of $2.35 billion as follows: $1.6 billion under the 2022 DDTL Facility and $750 million under the 2023 DDTL Facility. We contributed a majority of the proceeds from the borrowings under the DDTL Facilities to Jackson. With respect to the remaining amount of proceeds from the borrowings under the DDTL Facilities, we have (i) established a minimum liquidity buffer of at least $250 million at Jackson Financial, and (ii) retained the balance of the proceeds of approximately $575 million at Jackson Financial. The amounts at Jackson Financial are expected to be used for general corporate purposes, including interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to shareholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries. On November 23, 2021, the Company issued $1.6 billion aggregate principal amount of its senior unsecured notes. The proceeds of the Senior Notes were used, together with cash on hand, to repay the above mentioned $1.6 billion borrowing under the 2022 DDTL Facility.

Surplus Notes

On March 15, 1997, our subsidiary, Jackson, issued 8.2% surplus notes in the principal amount of $250 million due March 15, 2027. These surplus notes were issued pursuant to Rule 144A under the Securities Act of 1933, as amended, and are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims and may not be redeemed at the option of the Company or any holder prior to maturity. Interest is payable semi-annually on March 15th and September 15th of each year. Interest expense on the notes was $5 million during bothand $5 million for the three months ended March 31, 2022,2023 and 2021,2022, respectively.

Under Michigan Insurance Law,insurance law, for statutory reporting purposes, the surplus notes are not part of the legal liabilities of the Company and are considered surplus funds. Payments of interest or principal may only be made with the prior approval of the Michigan Director of Insurance and only out of surplus earnings which the director determines to be available for such payments under Michigan Insurance Law.

Federal Home Loan Bank

Jackson is a member of the regional FHLBI primarily for the purpose of participating in its collateralized loan advance program with funding facilities. Membership requires us to purchase and hold a minimum amount of FHLBI capital stock, plus additional stock based on outstanding advances. Advances are in the form of either notes or funding agreements issued to FHLBI. As of March 31, 20222023 and December 31, 2021,2022, Jackson held a bank loan with an outstanding balance of $63$58 million and $67$62 million, respectively.

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Dividend and Stock Repurchase

Consistent with our goals to manage risk and capital and optimize our financial leverage, we generally intend to target return of capital to our shareholders, which may take the form of cash dividends and/or stock repurchases, on an annual basis of approximately 40-60% of the annual change in our excess capital, adjusted for any contributions and distributions, subject to market conditions and approval by our Board of Directors. For purposes of this analysis, we define excess capital as total adjusted capital less 400% of company action level required capital. Consistent with statutory accounting requirements, total adjusted capital is defined as Jackson’s statutory capital and surplus, plus asset valuation reserve and 50% of policyholder dividends of Jackson and its subsidiaries. Company action level required capital is the minimum amount of capital necessary for Jackson to avoid submitting a corrective action plan to its regulator.

Any declaration of cash dividends or stock repurchases will be at the discretion of JFI’s Board of Directors and will depend on our financial condition, earnings, liquidity and capital requirements, regulatory constraints, level of indebtedness, contractual restrictions with respect to paying cash dividends or repurchasing stock, restrictions imposed by Delaware law, general business conditions and any other factors that JFI’s Board of Directors deems relevant in making any such determination. Therefore, there can be no assurance that we will pay any cash dividends to holders of our common stock or approve any stock repurchase program, or as to the amount of any such cash dividends or stock repurchases.

Delaware law requires that dividends be paid and stock repurchases made only out of “surplus,” which is defined as the fair market value of our net assets, minus our stated capital; or out of the current or the immediately preceding year’s earnings. JFI is a holding company and has no direct operations. All of our business operations are conducted through our subsidiaries. Any dividends we pay or stock repurchases we make will depend upon the funds legally available for distribution, including dividends or distributions from our subsidiaries to us. The states in which our insurance subsidiaries are domiciled impose certain restrictions on our insurance subsidiaries’ ability to pay dividends to their parent companies. These restrictions are based in part on the prior year’s statutory income and surplus, as well as earned surplus. Such restrictions, or any future restrictions adopted by the states in which our insurance subsidiaries are domiciled, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable by our subsidiaries without affirmative approval of state regulatory authorities. See “Risk Factors—As a holding company, JFI depends on the ability of its subsidiaries to meet its obligations and liquidity needs, including dividends and stock repurchases.”

Dividends to Shareholders and Share Repurchases

During the first quarter of 2022, we paid a cash dividend of $0.55 per share on JFI's Class A Common Stock totaling $52 million. On May 9, 2022, our Board of Directors approved a second quarter cash dividend on JFI's Class A Common Stock of $0.55 per share, payable on June 16, 2022 to shareholders of record on June 2, 2022.

During the first quarter of 2022, we repurchased a total of 3,433,610 shares of Class A Common Stock for an aggregate purchase price of $140 million, which were funded with cash on hand.

See Note 17 to Condensed Consolidated Financial Statements for further information on dividends to shareholders and share repurchases.


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Financial Strength Ratings

Our access to funding and our related cost of borrowing, the attractiveness of certain of our subsidiaries’ products to customers, our attractiveness as a reinsurer to potential ceding companies and requirements for derivatives collateral posting are affected by our credit ratings and financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting consumer confidence in an insurer and its competitive position in marketing products as well as critical factors considered by ceding companies in selecting a reinsurer.

Our principal insurance company subsidiaries are rated by A.M. Best, S&P, Moody’s and Fitch. Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurer or reinsurer to meet its obligations under an insurance policy or reinsurance arrangement and generally involve quantitative and qualitative evaluations by rating agencies of a company’s financial condition and operating performance. Generally, rating agencies base their financial strength ratings upon information furnished to them by the company and upon their own investigations, studies and assumptions. Financial strength ratings are based upon factors of concern to customers, distribution partners and ceding companies and are not directed toward the protection of investors. Financial strength ratings are not recommendations to buy, sell or hold securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

As of May 10, 2022,3, 2023, the financial strength ratings of our principal insurance subsidiaries were as follows:

CompanyA.M. BestFitchMoody’sS&P
Jackson National Life Insurance Company
RatingAAA2A
Outlookstablestablenegativestable
Jackson National Life Insurance Company of New York
RatingAAA2A
Outlookstablestablenegativestable
Brooke Life Insurance Company
RatingA
Outlookstable

In evaluating a company’s financial strength, the rating agencies evaluate a variety of factors including our strategy, market positioning and track record, our mix of business, profitability, leverage and liquidity, the adequacy and soundness of our reinsurance, the quality and estimated market value of our assets, the adequacy of our surplus, our capital structure, and the experience and competence of our management.

In addition to the financial strength ratings, rating agencies use an outlook statement to indicate a short- or medium-term trend which, if continued, may lead to a rating change. A positive outlook indicates a rating may be raised and a negative outlook indicates a rating may be lowered. A stable outlook is assigned when ratings are not likely to be changed. Outlooks should not be confused with expected stability of the issuer’s financial or economic performance. A stable outlook does not preclude a rating agency from changing a rating at any time without notice.

A.M. Best, S&P, Moody’s and Fitch review their ratings of insurance companies from time to time. There can be no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in their judgment, circumstances so warrant. While the degree to which ratings adjustments will affect sales of our annuities and institutional products, and persistency is unknown, if our ratings are negatively adjusted for any reason, we believe we could experience a material decline in the sales in our individual channel, origination in our institutional channel, and the persistency of our existing business.

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Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates

Summary of Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in our Condensed Consolidated Financial Statements included elsewhere herein.in this report. The most critical estimates include those used in determining:

•    deferred acquisition costs
•    reserves for future policy benefits and claims payable and other contract holder funds
•    income taxes
•    accounting for reinsurance
•    valuation and impairment of investments
•    valuation of freestanding derivative instruments
•    valuation of embedded derivatives
•    net investment income
•    contingent liabilities
•    consolidation of variable interest entities

In applying our accounting policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries while others are specific to our business and operations. Actual results could differ from these estimates.presented below.

The abovebelow critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and NoteNotes 1 and 2 of the Notes to the Consolidated Financial Statements included in our 20212022 Annual Report.

•income taxes and the ability to realize certain deferred tax benefits
•valuation and impairment of investments, including estimates related to expectations of credit losses on certain financial assets
•valuation of freestanding derivative instruments
•valuation of embedded derivatives
•net investment income
•contingent liabilities
•consolidation of variable interest entities

The below critical accounting estimates are updated from our 2022 Annual Report for the adoption of LDTI.

Reserves for Future Policy Benefits and Claims Payable

We establish reserves for future policy benefits to, or on behalf of, customers in the same period in which the policy is issued or acquired, using methodologies prescribed by U.S. GAAP.

Reserves for Future Policy Benefits

For non-participating traditional life insurance contracts and limited pay life-contingent contracts, which includes term, whole life, and payout annuities with significant insurance risk, reserves for future policy benefits represents the present value of estimated future policy benefits to be paid to or on behalf of policyholders in future periods and certain related expenses less the present value of estimated future net premiums.

Reserves for future policy benefits for non-participating traditional and limited-payment insurance contracts are measuredusing the net premium ratio (NPR) measurement model. The NPR measurement model accrues for future policy benefits in proportion to the premium revenue recognized. The reserve for future policy benefits is derived from the Company's best estimate of future net premium and future benefits and expenses, which is based on best estimate assumptions including mortality, persistency, claims expense, and discount rate. On an annual basis, or as circumstances warrant, we conduct a comprehensive review of our current best estimate assumptions based on our experience, industry benchmarking, and other factors, as applicable. Expense assumptions are updated based on estimates of expected non-level costs, such as termination or settlement costs, and costs after the premium-paying period and exclude acquisition costs or any costs that are required to be charged to expenses as incurred. Updates to assumptions are applied on a retrospective basis, and each reporting period the reserve for future policy benefits is updated to reflect actual experience to date.

The Company establishes cohorts, which are product groupings used to measure reserves for future policy benefits. In determining cohorts, the Company considered both qualitative and quantitative factors, including the issue year, type of product, product features, and legal entity.

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Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates
The discount rate used to estimate reserves for future policy benefits is consistent with an upper-medium grade (low-credit risk) fixed-income corporate instrument yield, which has been interpreted to represent a single-A corporate instrument yield. This discount rate curve is determined by fitting a parametric function to yields to maturity and related times to maturity of market observable single-A rated corporate instruments. The discount rate used to recognize interest accretion on the reserves for future policy benefits is locked at the initial measurement of the cohort. Each reporting period, the reserve for future policy benefits is remeasured using the currentdiscount rate. The difference between the reserve calculated using the current discount rate and the reserve calculated using the locked-in discount rate is recorded in other comprehensive income.

Additional Liabilities - Universal Life-type

The Company issues universal life plans with secondary guarantees and interest-sensitive life plans. The primary reserves for these policies are the contract holder account balances reported within the other contract holder funds line of the balance sheet. Where these contracts provide additional benefits beyond the account balance or base insurance coverage that are not market risk benefits or embedded derivatives, liabilities in addition to the policyholder’s account value arerecognized. These additional liabilities for annuitization, death and other insurance benefits are reported within reserves for future policy benefits and claims payable. The methodology uses a benefit ratio defined as a constant percentage of the assessment base. This ratio is multiplied by current period assessments to determine the reserve accrual for the period. The assumptions used in the measurement of the additional liabilities for annuitization, death and other insurance benefits are based on best estimate assumptions including mortality, persistency, investment returns, and discount rates. These assumptions are similarly subject to the annual review process discussed above.

Other Future Policy Benefits and Claims Payable

In conjunction with a prior acquisition, we recorded a fair value adjustment related to certain annuity and interest-sensitive life blocks of business to reflect the cost of the interest guarantees within the in-force liabilities, based on the difference between the guaranteed interest rate and an assumed new money guaranteed interest rate. This adjustment is recorded in reserves for future policy benefits and claims payable. This component of the acquired reserves is reassessed at the end of each period, taking into account changes in the in-force block. Any resulting change in the reserve is recorded as a change in policy reserve through the consolidated income statements.

In addition, life and annuity claims liabilities in course of settlement are included in other future policy benefits and claims payable.

See Note 9- Reserve for Future Policy Benefits and Claims Payable to Condensed Consolidated Financial Statements for additional information on these accounting policies.

Market Risk Benefits

Contracts or contract features that provide protection to the contract holder from capital market risk and expose the Company to other-than-nominal capital market risk are classified as MRBs. All long-duration insurance contracts and certain investment contracts are subject to MRB evaluation.MRBs are measured at fair value at the contract level and can be in either an asset or liability position. For contracts that contain multiple MRB features, the MRBs are valued together as a single compound MRB.

The use of models and assumptions used to determine fair value of MRBs requires a significant amount of judgement. The significant assumptions used in the MRB fair value calculations are:

•Mortality rates- These vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range used reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied.
•Base lapse rates - These vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized.
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Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates
•Utilization rates - These represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.
•Withdrawal rates - These represent the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount under the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions.
•Non-performance risk adjustment - This is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.
•Long-term equity volatility - This represents the equity volatility beyond the period for which observable equity volatilities are available.
See Note 6- Fair Value Measurements to Consolidated Financial Statements for additional information.

Variable Annuities

We issue variable contracts through our separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder. Certain of these contracts include contract provisions by which we contractually guarantee to the contract holder either a) return of no less than total deposits made to the account adjusted for any partial withdrawals, b) total deposits made to the account adjusted for any partial withdrawals plus a minimum return, or c) the highest account value on a specified anniversary date adjusted for any withdrawals following the contract anniversary. These guarantees include benefits that are payable upon the depletion of funds (GMWB), in the event of death (GMDB), at annuitization (GMIB), or at the end of a specified period (GMAB). Substantially all of our GMIB benefits are reinsured. GMIB benefits and GMAB benefits were discontinued in 2009 and 2011, respectively. For additional information regarding our account value by optional guarantee benefit, see Business–Our Segments–Retail Annuities–Variable Annuities in the 2022 Annual Report.

Variable annuity guaranteed benefit features classified as MRBs, which have explicit fees, are measured using the attributed fee method. Under the attributed fee method, fair value is measured as the difference between the present value of projected future liabilities and the present value of projected attributed fees. At the inception of the contract, the Company attributes to the MRB a portion of total fees expected to be assessed against the contract holder to offset the projected claims over the lifetime of the contract. The attributed fee is expressed as a percentage of total projected future fees at inception of the contract. This percentage of total projected fees is considered a fixed term of the MRB feature and is held static over the life of the contract. This percentage may not exceed 100% of the total projected contract fees as of contract inception. As the Company may issue contracts that have projected future liabilities greater than the projected future guaranteed benefit fees at issue, the Company may also attribute mortality and expense charges when performing this calculation. In subsequent valuations, both the present value of future projected liabilities and the present value of projected attributed fees are remeasured based on current market conditions and policyholder behavior assumptions.

Fixed Index Annuities

The longevity riders issued on fixed index annuities are classified as MRBs and measured at fair value. Similar to the variable annuity guaranteed benefits features, these contracts have explicit fees and are measured using the attributed fee method. The Company attributes a percentage of total projected future fees expected to be assessed against the policyholder to offset the projected future claims over the lifetime of the contract. If the fees attributed are insufficient to offset the claims at issue, the shortfall is borrowed from the host contract rather than recognizing a loss at inception.

RILA

RILA guaranteed benefit features are classified as MRBs and measured at fair value. Unlike variable or fixed index annuities, RILA products do not have explicit fees and are measured using an option-based method. The fair value measurement represents the present value of future claims payable by the MRB feature. At inception, the value of the MRB is deducted from the value of the contract resulting in no gain or loss.
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Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates

See Note 12- Market Risk Benefits of the Notes to Condensed Consolidated Financial Statements for additional information on these accounting policies.

Reinsurance

Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risk with respect to reinsurance receivables. We periodically review actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluate the financial strength of counterparties to our reinsurance agreements. Counterparty credit risk may be managed through the use of letters of credit, collateral trusts or on balance sheet funds withheld agreements. Assets held under funds withheld agreements are included on our balance sheets and subject to triggers embedded within the relevant reinsurance agreements.

Additionally, for each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. We review all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.

For reinsurance contracts, reinsurance recoverable balances are generally calculated using methodologies and assumptions that are consistent with those used to calculate the direct liabilities. For non-participating traditional life insurance contracts and limited pay life-contingent contracts, there may be reinsurance contracts executed subsequent to the direct contract issue dates, and market interest rates may have changed between the date that the underlying insurance contracts were issued and the date the reinsurance contract is recognized in the financial statements, resulting in the underlying discount rate differing between the direct and reinsured business.

Our guaranteed minimum income benefits (GMIBs) are reinsured with an unrelated party. For contracts that only ceded the GMIB feature of our annuity products, the reinsurance contract in its entirety is classified as a reinsured market risk benefit. Accordingly, the reinsured market risk benefit is recorded at fair value using internally developed models consistent with those used to value our direct market risk benefits.

See Note 8- Reinsurance of the Notes to Condensed Consolidated Financial Statements for additional information on these accounting policies.


Off–Balance Sheet Arrangements

We do not have any off–balance sheet arrangements as of March 31, 2022.2023.

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Item 3 | Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the quantitative and qualitative disclosures about market risk described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” previously disclosed in our 20222021 Annual Report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. During the period covered by this report,Report, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) ofunder the Exchange Act).

We describe in the Company's Form 10, Note 2—Restatement of Previously Issued Financial Statements to our audited financial statements, the background to the restatement of our previously-issued audited financial statements for the year ended December 31, 2020. Our management has concluded that the restatement resulted from a material weakness in our internal control over financial reporting as of December 31, 2020. Due to this material weakness in and determined our disclosure controls and procedures were not effective due to a material weakness identified related to the ineffective risk assessment of a process level control used to determine our non-performance risk adjustment in developing the discount rate used to estimate the fair value of some of the guarantee features of our variable annuity products, as described in "Item 9A. Controls and internal control over financial reporting,Procedures—Management’s Report on Internal Control Over Financial Reporting" previously disclosed in our 2022 Annual Report. Consequently, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures wereour internal control over financial reporting was not effective as of March 31, 2022.2023.

Although theThe Company has taken significant steps in ourbegan remediation plan, the Company continues to implement, document, and communicate policies, procedures, and internal controls. As a result of the material weakness our management has identified the need for stronger controls when assessing the accounting for significant and unusual transactions that involve a high degree of judgment and complexity, along with the need for additional technical U.S. GAAP accounting expertise. Our management has implemented and enhanced controls when assessing the accounting for significant and unusual transactions in the thirdfirst quarter of 20212023 and expects that it will be remediated by the end of the year. Remediation will include additional evidence supporting the review and challenge of inputs and results as well as madeenhancements to the governance process in developing the discount rate used to estimate the fair value of some key hires for additional technical U.S. GAAP accounting expertise. The Company believes that these actions will remediate the material weakness.However, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed in the second quarter of 2022.our guarantee features.

Changes in Internal Control Over Financial Reporting 

As described above, the Company has takenis taking steps to remediate the material weakness in its internal control over financial reporting and is implementing additional controls to remediate the material weakness. Additionally, as part of the adoption of LDTI, the Company has made certain changes to its valuation, financial reporting, and disclosure processes. As a result of these changes, the Company has made changes to certain existing controls, and implemented certain new controls, which address the risks of material misstatement in these processes. Other than these additional controls, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2022,2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


110128


Part II - Other Information

Item 1. Legal Proceedings.

For a discussion of legal proceedings, see Note 1316 of Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Item 1A. Risk Factors.

We discuss in this report, in our 20212022 Annual Report, and in our other filings with the SEC, various risks that may materially affect our business. In addition, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements - Cautionary Language” included herein. There have been no material changes to our risk factors from the risk factors previously disclosed in our 20212022 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities.

None.

Repurchase of Equity by the Company.

PeriodTotal Number of Shares PurchasedAverage Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Program (2)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions) (2)
January 1, 2022 - January 31, 2022787,372 $42.42 787,372 $56 
February 1, 2022 - February 28, 2022425,310 40.88 425,310 338 
March 1, 2022 - March 31, 2022 (1)
2,220,928 40.26 2,220,928 249 
Total3,433,610 3,433,610 
PeriodTotal Number of Shares PurchasedAverage Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Program (2)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions) (2)
January 1, 2023 - January 31, 2023 (1)
Share repurchase program334,037 $37.90 334,037 $93 
Employee transactions (3)
— N/AN/A N/A
February 1, 2023 - February 28, 2023
Share repurchase program95,000 46.74 95,000 539 
Employee transactions (3)
—  N/A N/A N/A
March 1, 2023 - March 31, 2023
Share repurchase program1,292,700 40.61 1,292,700 486 
Employee transactions (3)
40,641 40.37  N/A N/A
Totals
Share repurchase program1,721,737 1,721,737 
Employee transactions (3)
40,641 N/A
1,762,378 1,721,737 

(1) Includes repurchases of 750,000 shares under Class A Common Stock repurchase agreements with Athene.
(2) On February 28, 2022,27, 2023, our Board of Directors authorized an increase of $300$450 million to the existing share repurchase authorization. For more information on common stock repurchases, see Note 1720 of Notes to Condensed Consolidated Financial Statements.Statements included elsewhere in this Report.
(3) Includes shares withheld pursuant to the terms of awards under the Company's 2021 Omnibus Incentive Plan to offset tax withholding obligations that occur upon vesting and release of shares, which are treated as share repurchases. The value of the shares withheld is the closing price of common stock of Jackson Financial Inc. on the date the relevant transaction occurs.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.
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129



Item 6. Exhibits.

The following documents are filed as exhibits hereto:

NumberDescription
4.13.1
FormCertificate of Subordinated Indenture, between Jackson Financial Inc. and The BankDesignations with respect to the Series A Preferred Stock of New York Mellon Trustthe Company, N.A., as Trustee (the “Subordinated Indenture”),dated March 10, 2023, incorporated by reference to exhibit 4.5 toExhibit 3.1 of Jackson Financial Inc.’s Current Report on Form S-3,8-K, dated January 27, 2022.March 10, 2023.
4.1

Deposit Agreement, dated as of March 13, 2023, among the Company, Equiniti Trust Company, as a depositary, and the holders from time to time of the depositary receipts described therein, incorporated by reference to Exhibit 4.1 of Jackson Financial Inc.’s Current Report on Form 8-K, dated March 10, 2023.
4.2
Form of Junior Subordinated Indenture,Depository Receipt between Jackson Financial Inc. and The Bank of New York MellonEquiniti Trust Company N.A.dated as Trustee (the “Junior Subordinated Indenture”),of March 13, 2023, incorporated by reference to exhibit 4.6 toExhibit 4.2 of Jackson Financial Inc.’s Current Report on Form S-3,8-K, dated January 27, 2022.March 10, 2023.

10.1†10.1*†
Separation Agreement, by and between Aimee DeCamillo and Jackson National Life Insurance Company, dated as of January 26, 2022, incorporated herein by reference to exhibit 10.1 to Jackson Financial Inc.’s Form 8-K, dated February 9, 2022.

10.2†
Separation Agreement, by and between Andrew J. Bowden and Jackson National Life Insurance Company, dated April 5, 2021, incorporated herein by reference to exhibit 10.8 to Jackson National Life Insurance Company’s Post-Effective Amendment No. 1 to Form S-1 Registration Statement, dated April 22, 2022.

10.3†
Offer Letter Agreement to Laura L. Prieskorn, dated February 10, 2021, incorporated herein by reference to exhibit 10.19 to Jackson National Life Insurance Company’s Post-Effective Amendment No. 1 to Form S-1 Registration Statement, dated April 22, 2022.

10.4†
Offer Letter to Scott E. Romine, dated December 13, 2021, incorporated herein by reference to exhibit 10.20 to Jackson National Life Insurance Company’s Post-Effective Amendment No. 1 to Form S-1 Registration Statement, dated April 22, 2022.

10.5†
Offer Letter Agreement to Marcia L. Wadsten, dated February 10, 2021, incorporated herein by reference to exhibit 10.21 to Jackson National Life Insurance Company’s Post-Effective Amendment No. 1 to Form S-1 Registration Statement, dated April 22, 2022.

10.6†
2021 Form of Notice and the 2021 Performance Unit Award Agreement, which also was granted to Scott E. Romine, incorporated herein by reference to exhibit 10.25 to Jackson Financial Inc.’s 10-K Annual Report for the year ending December 31, 2021, filed on March 7, 2022.202

10.7†
2021 Form of Notice and the 2021 3 Restricted Share Unit Award Agreement, which also was granted to Scott E. Romine, incorporated herein by reference to exhibit 10.26 tobetween Jackson Financial Inc.’s 10-K Annual Report for the year ending December 31, 2021, filed on March 7, 2022. and Don W. Cummings.

10.8†10.2*†
2021 Form of Notice of, and the 2021 Celebration Award Restricted Share Unit Award Agreement, which also was granted to Scott E. Romine, incorporated herein by reference to exhibit 10.27 to Jackson Financial Inc.’s 10-K Annual Report for the year ending December 31, 2021, filed on March 7, 2022.

10.9*†
2021 Form of Equity Award Exchange Notice and the 2019 PRUDENTIAL PLC LONG TERM INCENTIVE PLAN AWARD CERTIFICATE (converted to performance share units, and share settled) for Scott E. Romine.

112

10.10*†
2021 2020 Form of Equity Award Exchange Notice and the 2020 PRUDENTIAL PLC LONG TERM INCENTIVE PLAN AWARD CERTIFICATE (converted to performance share units, share settled) for Scott E. Romine.

10.11*†
20222023, Restricted Share Unit Award Agreement, (including Notice of Award of Restricted Share Units that are share settled) between Jackson Financial Inc. and P. Chad Myers,each of Laura L. Prieskorn, Scott E. Romine, Craig D. Smith and Marcia L. Wadsten.Wadsten, incorporated by reference to Exhibit 10.14 of Jackson National Life Insurance Company’s Pre-Effective Amendment No. 1 to its Registrations Statement under the Securities Act of 1933 on Form S-1, dated April 1

7, 2023.
10.12*10.3*†
2022Form of Notice of, and 2023, Performance Share Unit Award Agreement, (including Notice of Award of Performance Units that are share settled) between Jackson Financial Inc. and P. Chad Myers,each of Laura L. Prieskorn, Scott E. Romine, Craig D. Smith and Marcia L. Wadsten.Wadsten, incorporated by reference to Exhibit 10.15 of Jackson National Life Insurance Company’s Pre-Effective Amendment No. 1 to its Registrations Statement under the Securities Act of 1933 on Form S-1, dated April 1

7, 2023.
10.13*10.4*†
2022 AmendedOffer Letter Agreement, dated as of October 19, 2020, by and Restated Performance Unit Award Agreement (including Notice of Award of Performance Units that are share settled) between Jackson Financial Inc. and P. Chad Myers, Laura L. Prieskorn, Scott E. Romine, Craig D. Smith and Marcia L. Wadsten.PPM America, Inc., incorporated by reference to Exhibit 10.21 of Jackson National Life Insurance Company’s Pre-Effective Amendment No. 1 to its Registrations Statement under the Securities Act of 1933 on Form S-1, dated April 1

7, 2023.
10.1410.5*†
Class A Common Stock RepurchaseUncommitted Money Market Line of Credit Agreement, betweendated as of April 6, 2023 by and among Jackson Financial Inc., Jackson National Life Insurance Company and Athene CSOCIÉTÉ GÉNÉRALE.o-Invest ReinsuranceAffiliate1ALtd.,incorporatedbyreferencetoexhibit10.1toJacksonFinancialInc.’sForm8-K, dated March 14, 2022.

31.1*
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.
† Identifies each management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

JACKSON FINANCIAL INC.
(Registrant)
Date: May 11, 20229, 2023By:/s/ Marcia Wadsten
Marcia Wadsten
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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