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3 Things Jackson Is Saying About the Annuity Market Now

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What You Need to Know

  • Overall sales have been great.
  • The company has tilted toward selling products without lifetime benefits guarantees.
  • Securities analysts were asking about how the company supports the guarantees it has provided.

Jackson Financial — the U.S. individual annuity giant — has just released earnings for its first full quarter as an independent company.

The Lansing, Michigan-based insurer previously was a child of Prudential PLC of London. Prudential executives took the lead in talking to investors and securities analysts.

In September 2021, Jackson separated from its corporate parent. Jackson now can eat ice cream for breakfast, stay up as late as it wants, and handle its own investor relations communications.

Jackson executives shared their view of the annuity world Thursday, during a conference call the company held to go over the latest earnings.

The company reported $585 million in net income for the quarter on $1.6 billion in revenue, up from $76 million in net income on $601 million in revenue for the fourth quarter of 2020.

Annuity account value increased 13% from the year-earlier quarter, thanks to the strong performance of the separate accounts, or policyholder accounts, inside the annuities it has sold.

Here are three things company executives talked about during their analyst call.

1. The annuity sales outlook looks great.

Some life insurers have emphasized that they might have benefited from unusual “tailwinds,” or helpful forces, in the latest quarter, and that sales growth might now slow.

Laura Prieskorn, Jackson’s CEO, expressed optimism about the coming year.

“We expect sales momentum for Jackson and the industry to continue,” Prieskorn said.

For the industry overall, 2021 sales were at the highest level since 2008, and at the third highest level ever, she added.

“All annuity categories saw growth,” Prieskorn said.

The company emphasized its optimism by authorizing a cash dividend of 55 cents per share for the first quarter and increasing its share repurchase authorization by $300 million.

2. Jackson is being careful about benefits guarantees.

Life insurers use giant portfolios of bonds and related instruments, such as derivatives, to support annuity benefits guarantees. Twenty years ago, when interest rates, and bond yields, were much higher, annuity issuers bragged about lifetime income guarantees and other types of guarantees.

Today, interest rates are lower, using earnings on bonds to support guarantees is more difficult, and many issuers are talking about efforts to eliminate or minimize sales of annuities with guarantees.

Marcia Wadsten, Jackson’s chief financial officer, said during the Jackson analyst call that has focused on sales of traditional variable annuities and new registered index-linked annuities, or RILAs, without lifetime benefit guarantees.

Sales of annuities without lifetime benefits guarantees amounted to 37% of the company’s $5 billion in retail annuity sales in the latest quarter, up from 27% in the year-earlier quarter, she said.

3. The current level of volatility seems manageable.

When another annuity issuer, American Equity Life, released earnings in mid-February, its executives mentioned volatility just once during their earnings call and spoke only briefly about hedging, or efforts to use derivatives and other arrangements and strategies to manage interest rate risk, investment price risk and other forms of risk.

The Jackson executives spoke after Russia’s invasion of Ukraine rocked world financial markets.

The executives talked about volatility and hedging often, both in their own presentations and in response to analyst questions.

Wadsten noted that Jackson bases fee calculations on annuity benefits totals, rather than on account value.

Basing the fees on benefit value “provides stability to the guarantee fee stream and protects our hedging budgets when markets decline,” she said.

An analyst asked about the effects of the broader economic environment, and the recent drop in stock prices.

“We’ve certainly worked through many types of market conditions over time, and our hedging has performed as expected,” Prieskorn said.

Chad Myers, Jackson’s vice chair, observed that interest rates appear to be heading higher.

Increased investment market volatility might increase some components of hedging costs, but higher interest rates could help decrease other components of hedging costs and provide a helpful tailwind, Myers said.

Pictured: Laura Prieskorn, CEO of Jackson Financial