EX-99.1 17 d43291dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

 

Preliminary Information Statement

(Subject to Completion, dated March 22, 2021)

Information Statement

Distribution of Class A Common Stock of

 

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Jackson Financial Inc.

 

 

Prudential plc (“Prudential”) is making this information statement available to its shareholders in connection with the planned separation of its majority-owned subsidiary Jackson Financial Inc. (“JFI”). To effect the separation, Prudential will make an in-specie distribution of approximately 70.2% of the shares of JFI’s Class A common stock (representing approximately 70.2% of the total combined voting power of JFI’s common stock and approximately 69.2% of JFI’s total common stock) on a pro rata basis to Prudential Shareholders (as defined herein) as of the Record Date (as defined herein). We refer to the separation and distribution as the “Demerger.” Immediately after the completion of the Demerger, JFI will be a separate, publicly-traded company.

If you are a record holder of Prudential ordinary shares as of the Record Date, you will be entitled to receive one share of JFI’s Class A common stock for every                  Prudential ordinary shares you hold on the Record Date. We expect the Demerger to be completed on                 , 2021. Prudential will distribute the shares of Class A common stock in book-entry form, which means that you will not receive physical stock certificates. Fractional shares of Class A common stock will not be delivered. Instead, the transfer agent will aggregate fractional shares into whole shares, sell, or cause to be sold, the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds of the sales pro rata to each holder who would otherwise have been entitled to receive fractional shares in the Demerger, net of applicable withholding taxes. You may be subject to tax in your home jurisdiction on the shares of Class A common stock received and any cash received in lieu of fractional shares based on your particular tax circumstances.

Prudential Shareholders are being asked to approve the Demerger at the general meeting of Prudential on                 , 2021 (the “Prudential General Meeting”). In connection with the Prudential General Meeting, Prudential is separately making available to its shareholders the Prudential Circular (as defined herein). The Prudential Circular will contain a form of proxy and describe the procedures for voting the Prudential ordinary shares and other details regarding the Prudential General Meeting. This information statement does not contain a proxy and is not intended to constitute solicitation material under U.S. federal securities law.

Other than approval of the Demerger at the Prudential General Meeting, no action by Prudential Shareholders will be necessary for Prudential Shareholders to receive shares of Class A common stock to which they are entitled in the Demerger. This means that Prudential Shareholders will not be required to pay any consideration for the shares of Class A common stock they receive in the Demerger, surrender or exchange their Prudential ordinary shares in order to receive shares of Class A common stock or take any other action in connection with the Demerger.

If you are a holder of Prudential American depositary receipts (“Prudential ADRs”), you will receive your entitlement to shares of Class A common stock in the Demerger in book-entry form on         , 2021, the Distribution Date for Prudential ADRs. As the shareholder on the register of members of Prudential kept in the UK (the “UK Register”), JPMorgan Chase Bank N.A., as depositary for the Prudential ADR program (the “U.S. Depositary”), will instruct our transfer agent to deliver the shares of Class A common stock to which it is entitled in connection with the Demerger directly to holders of Prudential ADRs.

Small Shareholders (as defined herein) may elect to have all of the shares of Class A common stock that they are entitled to receive in the Demerger sold by the Sale Agent (as defined herein) and the cash proceeds, net of applicable withholding taxes, remitted to them as soon as practicable following the sale of those shares. The share sale option is described in “The Demerger—Overview of the Share Sale Option.”

Prudential currently owns approximately 90.2% of JFI’s outstanding Class A common stock (representing approximately 90.1% of the total combined voting power of JFI’s common stock and approximately 88.9% of JFI’s total common stock). Until the Demerger occurs, Prudential will have the sole and absolute discretion to determine and change the terms of the Demerger, including establishing the Record Dates for the distribution and the Distribution Dates.

JFI has two classes of common stock: Class A common stock and Class B common stock. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to one-tenth of one vote per share. Holders of our Class A common stock and Class B common stock vote together as a single class on all matters, except as otherwise set forth in this information statement or as required by applicable law. Each outstanding share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer and upon being held by a stockholder that beneficially owns less than 9.9% of the total combined voting power of our common stock, except for certain exceptions and permitted transfers described in our certificate of incorporation. All of our Class B common stock is owned by Athene Life Re Ltd. for insurance regulatory purposes.

There is currently no public trading market for JFI’s Class A common stock. We expect to apply to list our Class A common stock on the New York Stock Exchange (“NYSE”) under the symbol “JXN.” We anticipate that a limited trading market for our Class A common stock, commonly known as a “when-issued” trading market, will develop on or shortly before                 , 2021, the Record Date for Prudential Shareholders on the UK Register, and will continue up to and including                 , 2021, the Distribution Date for Prudential ADRs. We anticipate “regular-way” trading of our Class A common stock will begin on                 , 2021, the first trading day after the Distribution Date for Prudential ADRs. There can be no assurance that, following the completion of the Demerger, the combined trading prices of the Prudential ordinary shares and JFI’s Class A common stock will equal or exceed what the trading price of Prudential ordinary shares would have been in the absence of the Demerger.

 

 

In reviewing this information statement, you should carefully consider the factors described in the section entitled “Risk Factors” beginning on page 38 of this information statement.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities described herein or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement is not an offer to sell, or a solicitation of an offer to buy, any securities.

 

 

The date of this information statement is                 , 2021.

Prudential first mailed a Notice of Internet Availability of Information Statement Materials containing instructions on how to access this information statement to its shareholders on or about                 , 2021. 

 


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TABLE OF CONTENTS

 

Information Statement Summary

     1  

Risk Factors

     38  

Special Note Regarding Forward-Looking Statements and Information

     84  

The Demerger

     86  

Dividend Policy

     94  

Recapitalization

     95  

Capitalization

     97  

Selected Historical Consolidated Financial Data

     98  

Unaudited Pro Forma Condensed Financial Information

     100  

Key Non-GAAP Financial Measures and Operating Measures

     104  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     110  

Business

     173  

Management

     233  

Executive Compensation

     237  

Beneficial Ownership of Common Stock

     270  

Certain Relationships and Related Party Transactions

     272  

Description of Capital Stock

     278  

Shares Available for Future Sale

     285  

Description of Certain Indebtedness

     287  

Certain Material Tax Considerations

     290  

Where You Can Find More Information

     301  

Glossary

     G-1  

Index to Consolidated Financial Statements

     F-1  

 

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Certain Important Terms

 

   

“we,” “us,” “our” and the “Company” mean Jackson 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”).

 

   

“Athene” means Athene Life Re Ltd. and its affiliates and permitted transferees.

 

   

“Athene Equity Investment” means the 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 Transaction” means the 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 Transactions” means the Athene Reinsurance Transaction and the Athene Equity Investment, together.

 

   

“Brooke Life” means Brooke Life Insurance Company, an indirect wholly-owned subsidiary of JFI and the direct parent company of Jackson National Life.

 

   

“CDI” means CREST Depository Interest.

 

   

“common stock” means our Class A common stock and our Class B common stock, together.

 

   

“CSN” means the Corporate Sponsored Nominee service provided by EFSL.

 

   

“Distribution Date” means             , 2021 for Prudential Shareholders on the UK Register,            , 2021 for Hong Kong Shareholders and            , 2021 for Prudential ADR Holders.

 

   

“EFSL” means Equiniti Financial Services Limited, providing the Prudential Corporate Sponsored Nominee and the Jackson Nominee Service. EFSL is registered in England & Wales with No. 06208699 and is authorized and regulated by the UK Financial Conduct Authority no. 468631.

 

   

“Eligible CSN Shareholders” means Prudential Shareholders on the UK Register who are natural persons and hold their Prudential ordinary shares in certificated form, and shareholders in the Prudential Corporate Sponsored Nominee, in each case who are eligible to hold shares of our Class A common stock or CDIs representing shares of our Class A common stock in the Jackson Nominee Service.

 

   

“Form of Election” means the form of election for Qualifying Shareholders and Prudential ADR Holders, subject to eligibility, to complete and return either (i) if they would like our Class A common stock to be sold on their behalf under the Share Sale Option or (ii) if they would like to opt out of the Jackson Nominee Service.

 

   

“Hong Kong Register” means the Hong Kong overseas branch register of members of Prudential.

 

   

“Hong Kong Shareholder” means a Prudential Shareholder who is registered on the Hong Kong Register.

 

   

“Investment Advisory Subsidiaries” means JNAM and PPM, together.

 

   

“Jackson Finance” means Jackson Finance, LLC.

 

   

“Jackson National Life” means Jackson National Life Insurance Company.

 

   

“Jackson National Life NY” means Jackson National Life Insurance Company of New York.

 

   

“Jackson Nominee Service” means the CSN that will be established for JFI stockholders.

 

   

“JNAM” means Jackson National Asset Management, LLC.

 

   

“PCAL” means Prudential Corporation Asia Limited.

 

   

“PPM” means PPM America, Inc.

 

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“Prudential” means Prudential plc, a public limited company organized under the laws of England and Wales, and our ultimate parent company. Prudential owned approximately 90.2% of JFI’s outstanding Class A common stock (representing approximately 90.1% of the total combined voting power of JFI’s common stock and approximately 88.9% of JFI’s total common stock) immediately prior to the Demerger. Immediately following the completion of the Demerger, Prudential will own approximately 20.0% of JFI’s outstanding Class A common stock (representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock).

 

   

“Prudential ADR” means an American depositary share representing two Prudential ordinary shares, evidenced by an American depositary receipt.

 

   

“Prudential ADR Deposit Agreement” means the deposit agreement, as amended and restated, among Prudential, Morgan Guaranty Trust Company of New York, and registered holders and beneficial owners from time to time of Prudential ADRs issued thereunder;

 

   

“Prudential ADR Holders” means all registered holders of Prudential ADRs.

 

   

“Prudential Circular” means the shareholder circular separately made available to Prudential Shareholders relating to the Demerger and the Prudential General Meeting.

 

   

“Prudential Corporate Sponsored Nominee” means the existing CSN for Prudential Shareholders.

 

   

“Prudential Group” in respect of any time prior to the Demerger, means Prudential and its subsidiaries and subsidiary undertakings; and in respect of any period following the completion of the Demerger, excluding the Company.

 

   

“Prudential ordinary shares” means the fully paid ordinary shares in the share capital of Prudential.

 

   

“Prudential Shareholders” means holders of Prudential ordinary shares registered on the UK Register or the Hong Kong Register.

 

   

“Prudential transfer agent” means Equiniti Limited in the UK and Computershare Hong Kong Investor Services Limited in Hong Kong.

 

   

“PUSH” means Prudential (US Holdco 1) Limited, the record holder of                  shares of JFI’s Class A common stock as of             , 2021. All of the shares of Class A common stock currently held by PUSH will be distributed to PCAL and then to Prudential in order to ensure that, immediately prior to completion of the Demerger, JFI is a direct majority-owned subsidiary of Prudential. As of the date of this information statement, PUSH is the direct parent of JFI and is an indirect wholly-owned subsidiary of Prudential.

 

   

“Record Date” means, for Prudential Shareholders on the UK Register and Prudential ADR Holders,                      UK time on             , 2021 and, for Prudential Shareholders on the Hong Kong Register,                      Hong Kong time on             , 2021.

 

   

“Qualifying Shareholder” means a record holder of Prudential ordinary shares on the Record Date.

 

   

“Sale Agent” means the nominee appointed by Prudential to sell or facilitate the sale of our Class A common stock under the Share Sale Option.

 

   

“Singapore Holder” a holder of an interest in Prudential ordinary shares on the Hong Kong Register in uncertificated form through The Central Depository (Pte) Limited (“CDP”).

 

   

“Small Shareholders” means Prudential Shareholders (excluding CREST shareholders) who hold 10,000 or fewer Prudential ordinary shares and Prudential ADR Holders who hold 5,000 or fewer Prudential ADRs.

 

   

“UK Listing Rules” means the listing rules of the Financial Conduct Authority of the UK under section 73A(1) of the Financial Services and Markets Act 2000 of the UK, as amended.

 

   

“UK Register” means the register of members of Prudential kept in the UK.

For definitions of selected financial and product-related terms used in this information statement, please refer to “Glossary” beginning on page G-1 of this information statement.

 

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Market and Industry Data

This information statement includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies, reports by market research firms and our own estimates based on our management’s knowledge of, and experience in, the insurance industry and market segments in which we compete. Third-party industry publications and forecasts generally state that the information contained therein has been obtained from sources generally believed to be reliable. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in “Risk Factors,” “Special Note Regarding Forward-Looking Statements and Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Service Marks, Trademarks and Trade Names

We hold various service marks, trademarks and trade names, such as Jackson National Life Insurance Company, Jackson, Jackson National Life, Brooke Life Insurance Company, Jackson National Asset Management LLC, Jackson National Life NY, our logo design, and MarketProtector, MarketProtector Advisory, RateProtector, Elite Access, Elite Access Advisory II, Perspective II, Perspective Advisory II, and Financial Freedom for Life, that we deem particularly important to the advertising activities conducted by each of our businesses. This information statement also contains trademarks, service marks and trade names of other companies which are the property of their respective holders. We do not intend our use or display of such names or marks to imply relationships with, or endorsements of us by, any other company.

Basis of Presentation

The financial information presented in this information statement differs from the financial information for the “Jackson Group” presented in the Prudential Circular. These differences relate primarily to the accounting basis applied. The financial information in this information statement has been prepared under accounting principles generally accepted in the United States of America (“U.S. GAAP”), while the financial information in the Prudential Circular is prepared under International Financial Reporting Standards (“IFRS”). There are also certain differences in the presentation of the results of the “Jackson Group” in Prudential’s consolidated financial statements as compared to the presentation of results in this information statement.

 

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INFORMATION STATEMENT SUMMARY

The following summary highlights selected information contained elsewhere in this information statement. Because this is only a summary, it does not contain all of the information that may be important to you. You should carefully read the entire information statement, including “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our financial statements included elsewhere in this information statement. For the definitions of certain capitalized terms used in this information statement, please refer to “Certain Important Terms” and “Glossary.”

Overview

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 and our well-known brand among distributors and advisors. 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 United States. Our variable annuities have been among the best-selling products of their kind in the United States 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 and intend to offer a registered index-linked annuity, or RILA, in 2021.

We sell our products through an industry-leading 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 eight of the past nine years, according to LIMRA. We were the largest retail annuity company in the United States for the year ended December 31, 2020, according to LIMRA, as measured by sales, selling approximately $18 billion in annuities.

Our operating platform is scalable and efficient. We administer approximately 75% 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 while maintaining a combined statutory operating expense to asset ratio of 26 basis points at our principal insurance company subsidiaries for the year ended December 31, 2020, which we believe is among the lowest in the life and annuity industry.

Product design and pricing are key aspects of our risk management approach, as is our hedging program. Our hedging program seeks to balance three objectives: protecting against the economic impact of adverse market conditions, protecting our statutory capital and stabilizing our statutory distributable earnings throughout market cycles. Jackson National Life paid approximately $4.2 billion in statutory stockholder dividends (net of capital contributions) from 2011 through 2020, despite substantial market volatility over that period.

These core strengths enable us to produce an attractive financial profile, reflected by our track record of generating profitable growth and earning attractive risk-adjusted returns. For the year ended December 31, 2020, we had total sales of $19 billion, AUM of approximately $362 billion, net (loss) income attributable to Jackson Financial Inc. of $(332.1) million and Adjusted Operating Earnings of $1,880.2 million. For the year ended December 31, 2020, we had a ROE and Adjusted Operating ROE of (4.1)% and 27.4%, respectively. See “Key Non-GAAP Financial Measures and Operating Measures” for information regarding our non-GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures.



 

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We intend to use our diverse product offering, industry-leading distribution capabilities, and efficient and scalable operating platform to pursue profitable growth opportunities and generate attractive risk-adjusted returns for stockholders through market cycles.

Our Company

Our principal operating subsidiary, Jackson National Life, was founded in Jackson, Michigan in 1961. It was acquired by Prudential plc, which we refer to as “Prudential,” an international financial services group, in 1986. We are presently an indirect majority-owned subsidiary of Prudential. Our more than 2,900 full-time employees, together with our Strategic Support Program associates (a flexible, cost-efficient, part-time workforce providing us with just-in-time scale), manage more than three million policies and $362 billion in assets under management as of December 31, 2020. We are headquartered in Lansing, Michigan and maintain offices in Franklin, Tennessee and Chicago, Illinois. Our insurance company subsidiaries are licensed to distribute insurance products in all 50 U.S. states and the District of Columbia.

Retail product offerings

Our retail product offerings comprise annuities, designed to help retail investors save for and live in retirement. Our diverse suite of annuities currently includes variable, fixed index and fixed annuities. This diverse offering allows us to meet the different needs of retail investors based on their risk tolerance and desired growth objectives, and to deliver customized, differentiated solutions to our distribution partners. Our annuities offer investors the opportunity to grow their savings consistent with their objectives, ranging from full market participation, with our variable annuities, to a guaranteed fixed return, with our fixed annuities. All of our annuities offer investors the opportunity to benefit from tax deferral. Some of our annuities offer optional guarantee benefits for a fee, such as full or partial protection of principal, minimum payments for life and minimum payments to beneficiaries upon death. We intend to offer a RILA in 2021.

 

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Variable Annuities. Our variable annuities offer investors full participation in market returns through a broad selection of funds in a variety of investment styles, including equities and fixed income. Our customers have the freedom to allocate their savings across this wide range of investment options, even if an optional guarantee benefit is elected. Our variable annuities offer a range of benefits to meet our customers’ needs. Optional guarantee benefits offer the customer guaranteed minimum protection based on their eligible



 

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contributions, adjusted for withdrawals, which protects against market volatility and investment performance risk. The principal features of our variable annuity optional guarantee benefits are:

 

   

Guaranteed minimum payments for the customer’s lifetime based on a fixed annual percentage of the benefit base, referred to as Guaranteed Minimum Withdrawal Benefits for Life, or GMWB for Life. As of December 31, 2020, 73% of our total variable annuity account value included a GMWB for Life optional guarantee benefit selection.

 

   

Guaranteed minimum payments based on a fixed annual percentage of the benefit base, for at least the amount of the customer’s total eligible contributions, referred to as Guaranteed Minimum Withdrawal Benefits, or GMWB. As of December 31, 2020, 3% of our total variable annuity account value included a GMWB optional guarantee benefit selection.

 

   

Death benefits that guarantee the annuity beneficiary will receive the higher of the current account value or the benefit base, which can be increased through roll-up and step-up features, referred to as an enhanced Guaranteed Minimum Death Benefit, or enhanced GMDB. As of December 31, 2020, 12% of our total variable annuity account value included an enhanced GMDB selection.

The investment freedom and optional guaranteed benefits we offer our customers have remained generally consistent over our history, which both our customers and distribution partners value. As a result, we have strong brand recognition with distributors and advisors, as demonstrated by the +29 Net Promoter Score (“NPS”) for our variable annuities, compared to an industry average NPS of -17, based on advisor surveys conducted by Advanis in 2020. For the year ended December 31, 2020, we had variable annuity sales of $16.6 billion. As of December 31, 2020, we had variable annuity account value of $228.7 billion.

RILA. We intend to offer a RILA in 2021. The RILA market has been the fastest growing category of the variable annuity market over the last five years, growing at a compound annual growth rate of 62.5% from January 1, 2015 through December 31, 2020. Our RILA will offer investors exposure to market returns through market index-linked investment options, subject to a cap, and will offer a variety of guarantees designed to modify or limit losses. Our RILA will generally include a guaranteed minimum payment to beneficiaries upon death. Our RILA will offer investors the opportunity to choose the floor or buffer level as well as term length. Downside protection beyond a specified percentage loss is provided through a “floor,” which establishes the maximum percentage loss in the market index-linked investment option selected that an investor will experience in a down market. Any loss in excess of the floor is insured and borne by us. Partial downside protection is provided through a “buffer,” which establishes an initial range of loss in the market index-linked investment option selected (e.g., the first 20% of loss) that we will insure and bear. Any loss that exceeds the buffer will result in a loss of account value and be experienced by the investor. The floor and buffer will vary by the selected strategy, term length and index elected. We believe the RILA market presents us with a compelling growth opportunity within our traditional channels with the potential to earn attractive risk-adjusted returns.

Fixed Index Annuities. Our fixed index annuities offer a guaranteed minimum crediting rate that is typically lower than a traditional fixed annuity and allow the customer discretion in the allocation of assets to either fixed accounts (which offer a fixed interest rate that is similar to our fixed annuities regardless of market performance) or to indexed funds with the potential for additional growth based on the performance of a reference market index (generally, the S&P 500 or MSCI EAFE), subject to a cap. Our fixed index annuities also offer an optional guaranteed minimum payments for life benefit. For the year ended December 31, 2020, we had fixed index annuity sales of $997 million. As of December 31, 2020, we had fixed index annuity account value of $357.1 million, net of reinsurance (including our Retail Annuities and Closed Life and Annuity Blocks segments).

Fixed Annuities. Our fixed annuities offer a guaranteed minimum crediting rate that is typically higher than the interest rates offered by bank savings accounts or money market funds. In addition to our traditional fixed annuities, in 2019, we launched a new multi-year guaranteed annuity with three different guaranteed crediting rate periods. Our fixed annuities do not offer guaranteed minimum payments for life benefits but can be annuitized, or converted into a single premium immediate annuity that offers such benefits. For the year ended



 

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December 31, 2020, we had fixed annuity sales of $327 million. As of December 31, 2020, we had fixed annuity account value of $2.3 billion, net of reinsurance (including our Retail Annuities and Closed Life and Annuity Blocks segments).

Advisor Compensation Arrangements. Depending on the compensation arrangements that have been established between the investor and the investor’s advisor, we offer either “commission-based” or “fee-based” annuities. Historically, broker-dealer representatives and insurance agents have predominantly offered our commission-based annuities and are compensated at the time of the annuity purchase through an upfront commission and may also be compensated through ongoing trail commissions.

We offer variable annuities and fixed index annuities as commission-based and fee-based annuities, allowing investors to access our diverse suite of annuities regardless of the compensation arrangements they have established with their advisor. Our fixed annuities are only offered as commission-based. For the year ended December 31, 2020, we generated sales of commission-based and fee-based annuities of $17.0 billion and $1.0 billion, respectively.

Independent Registered Investment Advisors (“iRIAs”) typically offer our fee-based annuities and are compensated by the investor through an asset-based fee or a flat fee that we do not influence or control. The total number of iRIAs within the industry utilizing annuities as part of their practice more than doubled from the year ended December 31, 2015 through the year ended December 31, 2019, from approximately 4,400 advisors to nearly 12,000 advisors. Since 2015, sales of our fee-based annuities have increased from near zero to over $1.0 billion in sales for the year ended December 31, 2020. Our fee-based annuities do not pay a commission or any other sales charge to the investment advisor and do not include surrender fees, and as such can be surrendered at any time after purchase without additional charge.

Distribution channels

As of December 31, 2020, our retail annuities are distributed through more than 600 distribution partners and more than 136,000 licensed and appointed advisors, down 1% from 2019, across four channels:

 

   

independent broker-dealers;

 

   

banks and other financial institutions;

 

   

wirehouses and regional broker-dealers; and

 

   

iRIAs, third-party platforms and insurance agents (the “IPA channel”).

 

LOGO

Our strong presence in multiple distribution channels has been essential to positioning us as a leading provider of retirement savings and income solutions. According to LIMRA, for the year ended December 31, 2020, we



 

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accounted for 16.8% of new sales in the U.S. retail variable annuity market and ranked number #1 in variable annuity sales. Each of these channels is supported by our sizeable wholesaler field force, which is among the most productive in the annuity industry. According to the Market Metrics Q3 2020 Sales, Staffing, and Productivity Report, our variable annuity sales per wholesaler are more than 10% higher than our nearest competitor. We are increasingly focused on growing sales through our IPA channel. We intend to facilitate the sale of annuities by registered investment advisors by offering them use of an insurance support desk that satisfies insurance-related licensing and regulatory requirements. We believe that there is a significant long-term opportunity to grow annuity sales through registered investment advisors, who managed approximately $5.7 trillion in investor assets at the end of 2019, according to a report by Cerulli Associates.

Institutional product offerings

Our primary institutional product offerings include traditional guaranteed investment contracts, Federal Home Loan Bank funding agreements and medium-term funding agreement-backed notes. Our institutional products provide us with an additional source of investment spread-based income, and generally guarantee purchasers of our products the payment of principal and interest at a fixed or floating rate over a term of two to 10 years. This investment spread-based income is generated based on the difference between the rate of return we are able to earn on the deposit and the interest payable to the purchasers of these products. We typically issue institutional products on an opportunistic basis depending on both the risk-adjusted return on investment opportunities available and the prevailing cost of funding required by purchasers of our institutional products. We sell our institutional products through investment banks or other intermediaries to institutional and corporate investors, plan sponsors and other eligible purchasers. For the year ended December 31, 2020, we had institutional product sales of $1.3 billion, and, as of December 31, 2020, we had institutional product account value of $11.1 billion.

Operating platform

Our in-house policy administration platform gives us flexibility to administer multiple product types through a single platform. To date, we have converted over 3.5 million life and annuity policies to our in-house policy administration platform, eliminating the burdens, costs and inefficiencies that would be involved in maintaining multiple legacy administration systems. As of December 31, 2020, we administered approximately 75% of our in-force policies on our in-house policy administration platform. We also have scalable third-party administration agreements. Our ability to utilize both in-house and third-party administrative platforms gives us flexibility to convert and administer acquired business efficiently. We believe that our operating platform provides us with a competitive advantage by allowing us to grow efficiently and provide superior customer service. We received the Contact Center of the Year award from Service Quality Management for 2019 and 2020, and the #1 overall operational ranking for 2019 and #2 overall operational ranking for 2020 from our broker-dealer partners, according to the Operations Managers’ Roundtable.

Investment management

Our Investment Advisory Subsidiaries, JNAM and PPM, have significant experience in asset management and manage our separate account assets and our general account assets, respectively. The separate account assets associated with our variable annuities are managed by JNAM, a wholly-owned registered investment advisor that provides investment advisory, fund accounting and administration services to the funds offered within our variable annuities. JNAM selects, monitors and actively manages the investment advisors that manage the funds we offer within our variable annuities. JNAM also directly manages asset allocation for funds of funds offered within our variable annuities. As of December 31, 2020, JNAM managed approximately $256 billion of assets.

PPM manages the majority of our investment portfolio and provides investment management services to Prudential’s Asian affiliates, former UK affiliate and other third parties across markets, including public fixed income, private equity, private debt and commercial real estate. Our investment and asset allocation guidelines



 

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are designed to provide us with a competitive rate of return on invested assets, to support the profitable growth of our business and to support our goal of maintaining appropriate capitalization from both a regulatory and ratings perspective. As of December 31, 2020, PPM managed $106 billion of assets. Since December 31, 2020, PPM’s assets under management have decreased primarily due to withdrawals by Prudential’s former UK affiliate. PPM’s assets under management at the time of the Demerger are anticipated to be approximately $80 billion.

Underwriting and product design

Our underwriting and product design practices are illustrated by the following:

 

   

In 2012, we developed and launched Elite Access, our investment-only variable annuity that does not include any guaranteed living benefits. Since that time, it has been the industry’s best-selling investment-only variable annuity. As of December 31, 2020, Elite Access represented 11% of our total variable annuity account value.

 

   

All of our variable annuities, including our flagship variable annuity, Perspective II, may be purchased without any guaranteed living benefits. As of December 31, 2020, variable annuities with no guaranteed living benefits (including investment-only variable annuities) represented 23% of our total variable annuity account value.

 

   

For those products that include optional guarantee benefits, we focus on guaranteed living benefits with risk characteristics that we believe are easier to manage, such as GMWB and GMWB for Life. As of December 31, 2020, 76% of our total variable annuity account value included a GMWB or GMWB for Life guaranteed living benefit.

 

   

We no longer offer guaranteed living benefits that we believe offer us a lower risk-adjusted return, such as Guaranteed Minimum Income Benefits, or GMIBs, and have utilized third-party reinsurance to mitigate the risks that we face with regard to specific features of our variable annuities. As of December 31, 2020, less than 1% of our total variable annuity account value included a GMIB, substantially all of which has been reinsured.

 

   

We have designed substantially all of our products such that the guarantee fee charged to the customer is calculated based on the benefit base, rather than the account value, which supports our hedging program by stabilizing the guarantee fees we earn.

 

   

Less than 5% of our in-force variable annuity policies, based on account value as of December 31, 2020, were sold prior to the 2008 financial crisis, a period of time when many variable annuities sold by our competitors were uneconomically priced and offered difficult to manage guarantee features.

 

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We set what we believe are appropriate mortality and policyholder behavior assumptions as part of our pricing and reserving practices. We monitor experience on an on-going basis, and we incorporate new experience data and emerging trends to ensure our actuarial assumptions and models reflect the appropriate mix of all available information and expert judgment.

Our hedging strategy seeks to manage equity and interest rate risk within risk tolerances through a mix of equity and interest rate derivatives as well as fixed income assets. Our hedging program seeks to balance three objectives: protecting against the economic impact of adverse market conditions, protecting our statutory capital and stabilizing our statutory distributable earnings throughout market cycles. Our core dynamic hedging program seeks to offset changes in economic liability associated with variable annuity guarantee benefits due to market movements, while our macro hedging program seeks to protect statutory capital under a range of stress scenarios. We also use third-party reinsurance to mitigate a portion of the risks that we face, principally in certain of our in-force annuity and life insurance products with regard to longevity and mortality risks and with regard to the vast majority of our GMIB optional benefit features.

We also use third-party reinsurance to manage capital in support of our strategy by monetizing selected risks in our in-force business. In June 2020, we entered into a funds withheld coinsurance agreement with Athene to reinsure $27.6 billion of our in-force fixed annuity and fixed index annuity reserves. See “Business—Reinsurance.” This transaction allowed us to monetize substantially all of our in-force fixed and fixed index annuity liabilities. We intend to continue to participate in the fixed and fixed index annuity markets.

Historically, we have managed and diversified our overall mortality and longevity risks through acquisitions. Since 2012, we have acquired more than $15 billion in life and annuity reserves. Consistent with our financial goals, we may opportunistically explore acquisitions that we believe provide attractive risk-adjusted returns.

Our Segments

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, in Corporate and Other.

Retail Annuities

We are a leading provider of annuities in the U.S. retirement market. Our Retail Annuities segment includes our variable, fixed index and fixed annuities. We intend to offer a RILA in 2021, which will be included in this segment. Our annuities are designed to offer investors the opportunity to:

 

   

grow their savings on a tax-deferred basis consistent with their objectives, ranging from annuities that offer full market participation to annuities that offer guaranteed fixed returns, including full or partial protection of principal;

 

   

protect their assets using a variety of standard and optional guarantee benefits and guaranteed minimum crediting rates; and

 

   

provide a source of income in the form of minimum payments for life and minimum payments to beneficiaries upon death.

Our variable annuities are designed for investors who desire full market participation and investment freedom. We offer a greater level of investment freedom compared to most other variable annuities available in the market, as well as many optional guarantee benefits, which allows investors to purchase only those benefits that match their objectives. We have a proven track record in this market with our industry-leading flagship product, Perspective II, and our investment only variable annuity, Elite Access. For the year ended December 31, 2020, Perspective II generated sales of $13.1 billion, or 73% of total sales in our Retail Annuities segment. For



 

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the year ended December 31, 2020, our variable annuities generated sales of $16.6 billion, or 93% of total sales in our Retail Annuities segment, an increase from sales of $14.7 billion in 2019.

Our fixed index annuities are designed for investors who desire principal protection with an opportunity to participate in capped upside investment returns linked to a reference market index. Our fixed index annuities offer optional guaranteed minimum payments for life benefits. In 2019, we refreshed our fixed index product suite to broaden our product offering and introduced MarketProtector, a fixed index annuity that offers a variety of interest crediting methods, indices and guaranteed crediting rate periods. MarketProtector also offers IncomeAccelerator, an optional guarantee benefit that provides guaranteed minimum payments for life. For the year ended December 31, 2020, our fixed index annuities generated sales of $997 million, or 5% of total sales in our Retail Annuities segment, down from sales of $3.8 billion in 2019.

Our fixed annuities are designed for investors who desire to grow their assets without market exposure. They offer a guaranteed minimum crediting rate, which is typically higher than the interest rates offered from bank savings accounts or money market funds. In 2019, we launched Jackson RateProtector, a single premium, multi-year guaranteed fixed annuity. Our fixed annuities offer three guaranteed crediting rate periods, ranging from three to seven years. For the year ended December 31, 2020, our fixed annuities generated sales of $327 million, or 2% of total sales in our Retail Annuities segment, down from sales of $1.2 billion in 2019.

Our sales of fixed index annuities and fixed annuities in 2020 decreased materially from 2019 as a result of pricing changes made in early 2020 in response to changing market conditions and to preserve statutory capital. Based on current market conditions, we expect sales of these products to remain at historically low levels in 2021.

As of December 31, 2020, we had approximately 1.3 million variable annuity policies in-force, representing approximately $228.7 billion of account value. As of December 31, 2020, we had more than 10,000 fixed annuity and 1,000 fixed index annuity policies in-force, representing approximately $1.1 billion of account value (net of reinsurance).

We intend to offer a RILA in 2021, which will offer investors exposure to market returns through market index-linked investment options, subject to a cap, and will offer a variety of guarantees designed to modify or limit losses. We believe our strong distribution network will enable us to capture and grow market share in the RILA market. Our RILA will generally include a guaranteed minimum payment to beneficiaries upon death.

In addition, JNAM’s results are included within our Retail Annuities segment.

For the year ended December 31, 2020, our Retail Annuities segment generated Operating Revenues of $4,479 million and Pretax Adjusted Operating Earnings of $2,006 million.

Institutional Products

Our Institutional Products segment includes traditional guaranteed investment contracts, Federal Home Loan Bank funding agreements and medium-term funding agreement-backed notes. Our institutional products generate investment spread-based income and generally guarantee the payment of principal and interest at a fixed or floating rate over a term of two to 10 years. We sell our institutional products through investment banks or other intermediaries to institutional and corporate investors, plan sponsors and other eligible purchasers.

As of December 31, 2020, we had $11.1 billion of institutional products account value. For the year ended December 31, 2020, our Institutional Products segment generated Operating Revenues of $356 million and Pretax Adjusted Operating Earnings of $85 million.



 

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Closed Life and Annuity Blocks

Our Closed Life and Annuity Blocks segment is primarily composed of blocks of business that have been acquired since 2004. The segment includes various protection products, primarily including whole life, universal life, variable universal life and term life insurance products, as well as fixed annuities and fixed index annuities. The Closed Life and Annuity Blocks segment also includes a block of group payout annuities which 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.

We 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 is a more efficient means of diversifying our in-force business than selling new life insurance products.

As of December 31, 2020, we had more than 1.8 million life insurance policies in-force. At December 31, 2020, our Closed Life and Annuity Blocks segment had $25.5 billion of total reserves. For the year ended December 31, 2020, our Closed Life and Annuity Blocks segment generated Operating Revenues of $1,527 million and Pretax Adjusted Operating Earnings of $0.2 million.

Corporate and Other

Corporate and Other includes the operations of PPM and unallocated corporate income and expenses, as well as certain eliminations and consolidation adjustments.

For the year ended December 31, 2020, Corporate and Other generated Operating Revenues of $149 million and Pretax Adjusted Operating Earnings of $(117) million.

Industry Environment and Opportunities

We believe the U.S. retirement savings and income solutions market presents a compelling growth opportunity and will support growth in new sales. We believe the primary sources of this growth are as follows:

Our target demographic is expected to continue to grow. The number of investors within our target market who are approaching or living in retirement is expected to continue to grow. Over the next decade, the proportion of the U.S. population age 55 or older is expected to grow at a rate double that of the total U.S. population, resulting in approximately 112 million individuals who will be age 55 or older by the year 2030, according to the Census Bureau’s Current Population Survey, March 2017. According to LIMRA, these individuals (age 55 or older) are expected to have investable assets of nearly $32 trillion by 2026, as compared to $17.5 trillion in 2016. Greenwald and Associates forecasts that, of these aging Americans, more than 61 million will retire from the workforce over the next 20 years. More than half of these projected retirees are expected to be within our target market, with greater than $100,000 in investible assets. In addition, the life expectancy of the average American has significantly increased, resulting in an increased number of years during which these individuals will live in retirement.

 

LOGO

(1) In thousands.



 

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The need for new sources of retirement income is expected to grow. Historically, many Americans depended on a government or private sector pension to provide predictable, consistent income during their retirement. Over the last few decades, there has been a pronounced shift from retirement income funded primarily by pension plans to retirement income funded primarily by individual savings. According to the Bureau of Labor Statistics, of all private sector workers in the United States, only 15% had access to a defined benefit pension plan in 2020 (down from 20% in 2010), and 52% only had access to a defined contribution retirement plan in 2020. This trend has increased the burden on individuals to save for their retirement and to use those savings to generate income during retirement. According to a June 2019 World Economic Forum report, the average 65-year-old American will outlive his or her retirement savings within nine years; and eight in ten non-retired Americans have expressed anxiety that their retirement savings will be insufficient, according to a survey by the Alliance for Lifetime Income. Congress recently recognized the increased need for access to predictable, stable retirement income through passage of the SECURE Act, which endorses the use of annuities in 401(k) and other defined contribution plans to provide Americans with greater access to retirement income.

Annuities are underutilized in the world’s largest retirement savings market. The United States is the world’s largest retirement savings market, estimated in a report by Cerulli Associates to comprise approximately $51 trillion in professionally managed retail and institutional assets as of December 31, 2019. However, only approximately $2.4 trillion of professionally managed assets were invested in annuities as of December 31, 2019. A key driver of this underutilization is the historical lack of integration of annuities into wealth management platforms and financial planning tools available to retail investors—with just one in four retail financial advisors who actively recommend annuities. We have been working actively with our distribution partners and financial technology firms to integrate annuities into the wealth management planning tools advisors use to select investments and build portfolios for their clients. We believe there is growing demand among retail investors for retirement income solutions. According to the Alliance for Lifetime Income, 28% of retail investors age 61 to 65 are likely to consider the benefits of protected, guaranteed income in their portfolio.

Structural changes could more than double the size of our addressable market. We believe that there is significant long-term opportunity to grow annuity sales through registered investment advisors, who, as of December 31, 2019, managed approximately $5.7 trillion of assets, according to a report by Cerulli Associates. Historically, annuities have been underutilized by these registered investment advisors; during 2019, variable annuities comprised approximately 10% of sales by registered investment advisors. We have been working actively with our distribution partners and financial technology firms to integrate annuities into the technology solutions used for wealth management planning, order entry and reporting, enabling a greater number of financial professionals to offer annuities as part of an investment portfolio. Moreover, we believe recent regulatory changes, including Regulation Best Interest and the Fiduciary Advice Rule, will result in more financial professionals including annuities in their client’s portfolios to manage market and longevity risk. A recent industry study identified that nearly two-thirds of Americans between the ages of 20 and 70 fear running out of money in retirement more than they fear death. We believe that evolving advisor fiduciary standards will cause advisors to seek solutions, such as fee-based annuities, that offer guaranteed income for life in more instances than they do today and that transfer the clients’ market and longevity risk to an insurance company, rather than managing those risks themselves.

Our Competitive Strengths

Market-leader with differentiated products and well-known brand. We have leading positions in the markets in which we operate. We have been the top selling retail annuity company in the United States for eight of the past nine years, according to LIMRA. We were the largest retail annuity company in the United States for the year ended December 31, 2020, according to LIMRA, as measured by sales, selling approximately $18 billion in annuities. We have been able to maintain our leading market position by continuously adapting our annuities to address investor objectives. In 2012, we developed and launched Elite Access, our investment-only variable annuity. Since that time, it has been the industry’s best-selling investment-only variable annuity. More recently, in response to the trend in financial services toward fee-based compensation arrangements, we have



 

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launched fee-based versions of our top-selling annuities, including the variable annuity products Perspective Advisory II and Elite Access Advisory II and the fixed index annuity product Market Protector Advisory. For the year ended December 31, 2020, we accounted for more than 20% of all fee-based annuity sales in the independent broker-dealer channel, 47% in the wirehouse channel and 30% in the regional broker-dealer and bank channels, and we ranked #2 overall with 28% total market share in fee-based annuity sales, according to LIMRA.

Our strong brand recognition among advisors is evidenced by our advisor loyalty in multiple channels and our NPS rankings of #1 and #2, respectively, for advisors distributing variable and fixed annuities according to advisor surveys conducted by Advanis in 2020. We have the highest advisor consideration score — a measure of the likelihood that an advisor will consider selling one of our products — in the annuity industry, and we are one of only three annuity providers with both high awareness and high favorable impression among advisors, according to advisor surveys conducted by Advanis in 2020. According to the Practical Perspectives 2020 Annuity and Insurance Report, we are the most frequently mentioned annuity provider among advisors for the best overall experience.

Industry-leading, diverse and proven distribution capabilities. We aim for a leading position in each of our four distribution channels. For the year ended December 31, 2020, we ranked #1 in variable annuity sales volumes in three of our four distribution channels, according to LIMRA. Our strength across multiple channels supports sales diversification, with our largest channel, independent broker-dealers, contributing 69% of annuity sales for the year ended December 31, 2020.

Our distribution network is supported by one of the largest and most productive wholesaler field forces in the annuity industry. The majority of our external wholesalers are physically located within their defined geographic territory, allowing them to develop deep relationships with local advisors and agents and to provide training, client and business development support. Beginning in March 2020 as a result of the coronavirus (“COVID-19”) pandemic, our wholesalers effectively transitioned to working remotely and have benefited from these strong, established relationships. According to the Market Metrics Q3 2020 Sales, Staffing, and Productivity Report, our variable annuity sales per wholesaler, a key performance indicator for wholesalers, ranks #1 in the industry and is more than 10% higher than the nearest competitor.

Our diverse distribution network and product offering support our sales volumes across our product suite. In the retail annuity market, we were the top selling provider during the year ended December 31, 2020, with a market share of 8.2% and we have achieved the top sales ranking in eight of the past nine years. In the variable annuity market, we have consistently been the leading provider to Americans since 2013, with a 16.8% market share in the United States for the year ended December 31, 2020. Our distribution network has a demonstrated ability to rapidly grow sales and market share. For example, following our launch of a new fixed annuity product, RateProtector, and the refresh of our existing fixed index annuity product, MarketProtector, our fixed index market share increased to 5.2% in 2019 from 0.5% in 2018, and our fixed annuity market share increased to 3.5% in 2019 from 0.5% in 2018. In 2020, in response to the low interest rate environment and broader market conditions, and to preserve statutory capital, we reduced emphasis on fixed index and fixed annuity sales. We expect to re-focus on these markets in the future, subject to market conditions. The following table illustrates our sales and our market share and rankings for variable annuities and annuities in total for the year ended December 31, 2020:

 

Type of Annuities

   Total Sales      Retail Annuity
Market Share
(by sales) (1)
    Ranking
(by sales) (1)
 

Variable Annuities

   $ 16.6 billion        16.8     #1  

Total Annuities

   $ 17.9 billion        8.2     #1  

 

(1)

Based on LIMRA’s U.S. Individual Annuities Sales Survey.



 

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Efficient and scalable operating platform. We operate an efficient and scalable operating platform that enables us to deliver excellent service. Our service center was ranked #1 in overall operational ranking for 2019 and #2 in overall operational ranking for 2020 by our broker-dealer partners according to Operations Managers’ Roundtable, and it was recognized for its policyholder services, receiving the Contact Center of the Year award from Service Quality Management for 2019 and 2020. Our in-house policy administration platform gives us flexibility to administer multiple product types through a single platform. This operational flexibility is highlighted by our track record of integrating acquired business into our administration platform. To date, we have converted over 3.5 million life and annuity policies to our single in-house policy administration platform, eliminating the burdens, costs and inefficiencies that would be involved in maintaining multiple legacy administration systems. In addition, we have scalable third-party administration agreements with two industry-leading business process outsourcing firms which administer approximately 600,000 policies in aggregate. We believe that our operating platform provides us with a competitive advantage by allowing us to grow efficiently and provide superior customer service while maintaining a combined statutory operating expense to asset ratio of 26 basis points at our principal insurance company subsidiaries for the year ended December 31, 2020, which we believe is among the lowest in the life and annuity industry.

We maintain a low-cost, part-time workforce referred to as our Strategic Support Program. These resources allow us to augment full-time resources and provide just-in-time scale when sales and service volumes warrant. The program is designed in such a way that, based on data-driven forecasted volumes of customer requests, we are able to increase or decrease workforce capacity on a weekly basis. As a result, we are able to reduce our labor costs by paying for the capacity we need instead of maintaining a larger number of full-time staff in order to handle peak volumes.

Risk Management Culture. We manage the Company around a strong risk management culture, with policies and procedures across multiple levels. Execution and oversight of our risk management framework is supported by our finance, actuarial, asset-liability management and risk teams, who have successfully managed our business throughout market cycles. We employ various risk management strategies, including hedging and third-party reinsurance, with the objective of mitigating certain risks inherent in our business and operations. Our hedging program seeks to balance three objectives: protecting against the economic impact of adverse market conditions, protecting our statutory capital and stabilizing our statutory distributable earnings throughout market cycles. We also use third-party reinsurance to mitigate a portion of the risks that we face, principally in certain of our in-force annuity and life insurance products with regard to longevity and mortality risks and with regard to the vast majority of our GMIB optional benefit features.

We manage our book of business across vintages by applying a consistent approach to underwriting and product design. For example, less than 5% of our in-force variable annuity policies, based on account value as of December 31, 2020, were sold prior to the 2008 financial crisis, a period of time when many variable annuities sold by our competitors were uneconomically priced and offered difficult to manage guarantee features. We have also focused on products that either do not offer guaranteed living benefits, such as our investment-only variable annuity, or only offer optional guarantee benefits with risk characteristics that we believe are easier to manage, such as GMWB and GMWB for Life. As a result, as of December 31, 2020, 23% of our total variable annuity account value included no guaranteed living benefits, and 76% included a GMWB or GMWB for Life optional guarantee benefit.

Another core element of our risk management is JNAM’s fund-manager diligence and oversight process and focus on the long-term performance of separate account fund offerings. JNAM selects, monitors and actively manages the investment advisors that sub-advise the funds we offer within our variable annuities. Over the past 10 years, 57% of the AUM in our actively-managed mutual funds outperformed their Morningstar® Category Average as of December 31, 2020. This relative outperformance benefits our clients, increases our fee income and decreases the liabilities associated with optional guarantee benefits, as the probability decreases that withdrawals will deplete the client’s account value. JNAM’s selection and monitoring process also enables us to focus on funds where we believe we can transact in highly correlated hedge assets.



 

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Experienced management team. Our executive management team has successfully managed the business across multiple economic cycles and has been supplemented by new leadership to drive business objectives. Our executive management team has an average of over 25 years of experience in financial services, with proven industry leadership and experience to execute upon our strategy. Furthermore, we believe our executive management team has developed a strong reputation with regulators and ratings agencies.

Our Strategies

We believe our strategy is focused and readily executable as an independent, publicly-traded company. Our primary goals are to maintain the strength of our balance sheet, pursue profitable growth opportunities and generate attractive risk-adjusted returns for stockholders through market cycles.

Capital Management

Maintaining a strong balance sheet is critical to supporting our objectives of fulfilling our obligations to policyholders, supporting the sales of new policies and distributing capital to our stockholders. We believe that a critical aspect of maintaining a strong balance sheet is remaining disciplined on product profitability and capital consumption.

We intend to manage our target adjusted RBC ratio (as defined in “—Financial Goals”) to a range of 500% to 525% under normal market conditions. As we expect to be near this target adjusted RBC ratio in 2021, subject to market conditions, we plan to balance the use of our capital resources among:

 

   

supporting our financial strength;

 

   

optimizing our total financial leverage;

 

   

supporting long-term growth through investment in new sales at appropriate margins; and

 

   

distributing capital to our stockholders through cash dividends and/or stock repurchases.

We intend to focus our new product development efforts on capital-efficient products that help diversify our balance sheet and risk exposures. We also intend to maintain the focus of our risk management program which seeks to balance three objectives: protecting against the economic impact of adverse market conditions, protecting our statutory capital and stabilizing our statutory distributable earnings throughout market cycles.

We expect to be in a position to distribute capital of between $325 million and $425 million to our stockholders in the first 12 months following the completion of the Demerger, through cash dividends and/or stock repurchases, depending on market conditions and subject to approval by our board of directors. See “—Financial Goals” and “Dividend Policy.”

Operating Strategies

Looking forward to our business growth and diversification opportunities, we have identified three areas that offer significant potential for future growth. First, we intend to market a comprehensive suite of retirement products that we believe are sought after by retail investors and our distribution partners. Second, we plan to optimize the sales mix across our broad product portfolio by leveraging the strength of our industry-leading distribution network and entering into new agreements with both established distributors and under-penetrated, non-traditional channels, such as iRIAs and investment advisors. Third, we seek to grow the overall market demand for retail annuities by partnering with wealth management solution providers that historically have not considered annuities as a solution to provide retirement savings and income protection.

With these initiatives, we expect to accelerate our sales growth, diversify our in-force book of liabilities and reinforce our leading market positions.



 

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Broaden our Portfolio of Retail Annuities that Meet the Needs of our Distributors and Retail Investors. We have products, and are developing new products, that provide enhanced simplicity and transparency and satisfy a range of investor and advisor demand. These products offer investors the opportunity to grow their savings consistent with their objectives, ranging from full market exposure, with our variable annuities, to a guaranteed fixed return, with our fixed annuities. For example:

 

   

We intend to offer a RILA in 2021, which is the fastest growing category of product in the variable annuity market, and offers exposure to market returns through market index-linked investment options and a variety of guarantees designed to modify or limit losses.

 

   

In 2021, we are also planning to launch a new fee-based variable annuity product targeted at iRIAs that will feature low costs and a simplified set of optional guarantee benefits, which we believe will meet the needs of our iRIA distribution partners and further improve our positioning among iRIAs.

We intend to maintain an active product pipeline that will allow us to introduce additional new products over a multi-year period and continue to be at the forefront of product innovation in the industry.

In addition to our expectation that these new products will be attractive to distributors and retail investors, we believe over time they will improve the efficiency of our capital deployment and diversify the overall risk profile of our liabilities.

Leverage and Expand our Industry Leading Distribution Network. We have an established leading position in our traditional distribution channels, namely independent broker-dealers, wirehouses and regional broker-dealers and banks and other financial institutions. We believe there are opportunities to grow sales within these channels, and we are focused on increasing the number of advisors that sell our annuities and deepening existing relationships.

We are also expanding our established distribution platform with the following active initiatives:

 

   

We continue to establish new partnerships, such as the annuity distribution relationship we entered into with State Farm Life Insurance Company in 2019 and Ameriprise in 2020.

 

   

We are accelerating sales of our fee-based annuities by iRIAs and investment advisors who are affiliated with independent broker-dealers, wirehouses, regional broker-dealers and banks. We believe there is a meaningful market opportunity given the growth of iRIAs and investment advisory businesses, as well as the historical underutilization of annuities by these advisors. We are addressing this underutilization and are aiming to increase their consideration and use of annuities by helping these advisors to satisfy insurance-related licensing and regulatory requirements, either through access to our insurance support desk or through third-party insurance sales platforms (e.g., DPL Retirement Advisors and RetireOne).

Expand the Market for Retirement Products by Partnering with Wealth Management Solution Providers. We have been working actively with our distribution partners and financial technology firms to integrate annuities into the tools they use for wealth management. Historically, these wealth management tools have been configured to create plans and illustrations, to enter orders and to prepare client reports for a wide range of investments, including stocks, bonds, mutual funds and ETFs, but have not included annuities. Through our efforts, many proprietary and third-party wealth management tools now enable advisors to generate client proposals, financial planning illustrations, and portfolio and performance reviews that incorporate annuities, along with their client’s other investments. As of December 31, 2019, nearly half of the advisors in the United States have access to financial planning software that actively integrates annuities. We are educating and training advisors how to best use this capability, which enables the retail investor and advisor to better understand how annuities, including their protection features and potential tax deferral benefits, can enhance overall portfolio construction and retirement income planning. For example, investors will be able to use wealth management tools to assess how the addition of an annuity to their investment portfolios will impact the probability that they will realize desired income streams over the course of their lives.



 

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The addition of annuities to wealth management tools also makes it easier for advisors to complete insurance applications, to deposit funds into and withdraw funds out of annuities, to actively manage the investment options available inside our variable annuities, and to produce reports for their clients that show the performance and protection features of our annuities alongside other investments.

We believe that increasing this level of integration will lead to higher utilization of annuity products by advisors across all channels, and will thereby grow the overall market demand for retail annuities.

Financial Goals

We have designed our financial goals to maintain a strong balance sheet while seeking to deliver disciplined profitable growth, which we expect will allow us to reinvest in our businesses and distribute capital to our stockholders.

Manage Risk and Capital. Based on our current in-force business mix, we intend to manage to a target adjusted RBC ratio of 500% to 525% under normal market conditions. Our target adjusted RBC ratio reflects the capital and capital requirements of Jackson National Life and its subsidiaries, adjusted to include cash and investments at JFI in excess of our target minimum cash and cash equivalents at JFI (which we currently expect to be approximately $250 million). We expect to be near this target adjusted RBC ratio in 2021, which supports our expectation to be in a position to distribute capital to our stockholders in the first 12 months following the completion of the Demerger, depending on market conditions and subject to approval by our board of directors.

Optimize Leverage. In order to enhance our financial flexibility and ensure that we maintain our financial strength ratings, we will target a total financial leverage ratio of between 20% and 25% over the long term. Total financial leverage is the ratio of total debt to combined total debt and stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”). For purposes of monitoring our total financial leverage ratio, total debt includes traditional debt instruments as well as hybrid debt securities and preferred securities (without assigning any equity credit to hybrid securities or preferred securities as rating agencies typically do).

Return Capital to Our Stockholders. Consistent with our goals to manage risk and capital and optimize our financial leverage, we generally intend to target return of capital to our stockholders on an annual basis of approximately 40-60% of the annual change in our excess capital, adjusted for any capital contributions and distributions, subject to market conditions and approval by our board of directors. We define excess capital as total adjusted capital less 300% of company action level required capital. Consistent with statutory accounting requirements, total adjusted capital is defined as Jackson National Life’s statutory capital and surplus, plus asset valuation reserve and 50% of policyholder dividends of Jackson National Life and its subsidiaries. Company action level required capital is the minimum amount of capital necessary for Jackson National Life to avoid submitting a corrective action plan to its regulator. We expect to be in a position to distribute capital of between $325 million and $425 million to our stockholders in the first 12 months following the completion of the Demerger, through cash dividends and/or stock repurchases, depending on market conditions and subject to approval by our board of directors. See “Dividend Policy.”

Our financial goals reflect the contribution of the majority of the net proceeds from the financing transactions described in “Recapitalization” to Jackson National Life, our primary operating company. Our financial goals are also based on a number of important assumptions, including assumptions regarding interest rates and equity market performance. Actual results related to these targets may vary depending on various factors, including actual capital market outcomes, changes in actuarial models or emergence of actual experience, and regulatory limitations, as well as other risks and factors discussed in “Risk Factors” and “Business—Financial Goals.” We expect our financial goals to evolve over time to reflect changes in our business strategies and our balance sheet mix.

History and Development

We are presently an indirect majority-owned subsidiary of Prudential, an international financial services group serving over 20 million customers worldwide as of December 31, 2020. Our primary operating company, Jackson



 

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National Life, is a stock life insurance company organized under the laws of Michigan. Founded in Jackson, Michigan in 1961, Jackson National Life was acquired by Prudential in 1986. Jackson National Life, together with Jackson National Life NY, is licensed to conduct life insurance and annuity business in all 50 states in the United States and the District of Columbia.

In June 2020, we entered into a funds withheld coinsurance agreement with Athene Life Re Ltd., which we refer to as “Athene,” 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. We allocated investments with a book value of $25.6 billion in support of reserves associated with the transaction to segregated funds withheld accounts, which investments are subject to an investment management agreement with Apollo Insurance Solutions Group LP. To further support its obligations under the reinsurance agreements, Athene procured $1.2 billion in letters of credit for our benefit and established a trust account for our benefit funded with assets with a book value of approximately $69.5 million at December 31, 2020. See “Certain Relationships and Related Party Transactions.”

In July 2020, Athene invested $500 million in the Company 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.

Organizational Structure

After the completion of the Demerger, Prudential will own approximately                  shares of JFI’s Class A common stock, representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock and Athene will own approximately                  shares of Class A common stock and approximately                  shares of Class B common stock, representing approximately 9.9% of the total combined voting power of JFI’s common stock and approximately 11.1% of JFI’s total common stock.

Immediately following the completion of the Demerger, we estimate that approximately                  shares of our Class A common stock and approximately                  shares of our Class B common stock will be issued and outstanding, based on                  Prudential ordinary shares issued and outstanding as of                 , 2021. Share amounts and share ownership percentages in this information statement give effect to (i) a              -for-              stock split to be effected as a reclassification of our common stock prior to the Demerger and (ii) a distribution ratio of one share of Class A common stock for every                  Prudential ordinary shares. The descriptions of our certificate of incorporation and bylaws in this information statement reflect the amendments to such documents to be effected prior to the Demerger.

Brooke Life, an indirect wholly-owned subsidiary of JFI, is the sole owner of our other insurance company subsidiaries, including Jackson National Life. Jackson National Life has 16 subsidiaries in North America (exclusive of subsidiaries formed as investment vehicles and dormant companies) that include Jackson National Life NY, JNAM, and Jackson National Life Distributors LLC (“JNLD”).



 

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The following chart illustrates our ownership and simplified organizational structure, immediately after giving effect to the Demerger:

 

LOGO

For a description of the Revolving Facility, 364-Day DDTL Term Facility and 2-Year DDTL Term Facility, see “Recapitalization.”

Our Corporate Information

Jackson Financial Inc. is a Delaware corporation. Our principal executive offices are located at 1 Corporate Way, Lansing, Michigan 48951, and our telephone number is 517-381-5500. Our website is www.jackson.com. None of the information contained on, or that may be accessed through, our website or any other website identified herein is part of, or incorporated into, this information statement.

Summary Risk Factors

Our business is subject to a number of risks, including risks that could prevent us from achieving our business objectives or financial goals or that otherwise could adversely affect our business, financial condition, results of operations and cash flows. These risks are discussed more fully in “Risk Factors.” These risks include the following:

 

   

General conditions in the global capital markets and the economy;

 

   

Equity market declines and volatility;

 

   

Volatility in interest rates and credit spreads or prolonged periods of low interest rates;

 

   

Adverse capital and credit market conditions;



 

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The COVID-19 pandemic, the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic, and other natural and man-made disasters and catastrophes;

 

   

As a holding company, JFI depends on the ability of its subsidiaries to meet JFI’s obligations and liquidity needs;

 

   

Adverse outcomes from the operational risks inherent in our business, and those of our material outsourcing partners, could disrupt our business functions;

 

   

Our information technology systems could fail or their security could be compromised;

 

   

Failure to protect the confidentiality of customer information or proprietary business information could adversely affect our reputation and cause a material adverse effect on our business, financial condition, results of operations and cash flows;

 

   

Our inability to recruit, motivate and retain key employees and experienced and productive employees;

 

   

We could experience difficulty in marketing and distributing products;

 

   

The risk of deterioration of the credit quality of, and defaults on, the securities and loans in our investment portfolio;

 

   

Our reinsurance and hedging programs expose us to counterparty credit risk and basis risk and could be inadequate to protect us against the full extent of the exposure or losses we seek to mitigate;

 

   

The availability and effectiveness of hedging instruments could materially and adversely affect our profitability;

 

   

Some of our investments are relatively illiquid and could be difficult to sell, or to sell in significant amounts at acceptable prices, to generate cash to meet our liquidity needs;

 

   

Our annuities contain many features and options, and the failure to accurately describe the features and options or to administer features and options consistent with their descriptions could adversely impact us;

 

   

Optional guarantee benefits within certain of our annuities could decrease our earnings, decrease our capitalization, increase the volatility of our results, result in higher risk management costs and expose us to increased counterparty risk;

 

   

A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of existing business and adversely impact future sales of our products;

 

   

Competitive activity could adversely affect our market share and financial results;

 

   

We rely on complex models which contain assumptions and could contain errors, which could result in materially inaccurate risk assessments and output regarding the calculation of exposures and losses we seek to mitigate through our hedge program;

 

   

Our risk management policies and procedures may not be adequate to identify, monitor and manage risks, which could leave us exposed to unidentified or unanticipated risks;

 

   

Our financial models rely on estimates, assumptions, sensitivities and projections that are inherently uncertain and which may contain misjudgments and errors that could result in material differences between our modeled projections and the actual experience of our business;

 

   

If our reserves for future policy benefits and claims are misestimated and inadequate, we would be required to increase our reserve liabilities;

 

   

We could face unanticipated losses if there are significant deviations from our assumptions regarding the probabilities that our annuity contracts will remain in force from one period to the next or if morbidity or mortality rates differ significantly from our pricing expectations;



 

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Our businesses are heavily regulated and changes in regulation could reduce our profitability and limit our growth;

 

   

A material decrease in the RBC ratio of our insurance subsidiaries (e.g., as a result of a reduction in statutory capital and surplus or increase in RBC requirements) could result in increased scrutiny by regulators and rating agencies;

 

   

The impact of legal and regulatory changes, investigations and actions; and

 

   

Changes in U.S. federal income or other tax laws or the interpretation of tax laws could affect sales of our annuities and our profitability.

The Demerger

Overview

To effect the Demerger, Prudential will make an in-specie distribution of approximately 70.2% of the shares of JFI’s Class A common stock (representing approximately 70.2% of the total combined voting power of JFI’s common stock and approximately 69.2% of JFI’s total common stock) on a pro rata basis to Prudential Shareholders, and JFI will become a separate, publicly-traded company.

In connection with the Demerger, we and Prudential entered into a demerger agreement (the “Demerger Agreement”) and a registration rights agreement (the “Registration Rights Agreement”). These agreements will govern the relationship between Prudential and us up to and after completion of the Demerger. See “The Demerger” and “Certain Relationships and Related Party Transactions.”

The Demerger is subject to the satisfaction or waiver of a number of conditions. In addition, Prudential has the right not to complete the Demerger if, at any time, the Prudential board of directors (the “Prudential Board”) determines, in its sole and absolute discretion, that the Demerger is not in the best interests of Prudential or its shareholders or is otherwise not advisable. See “The Demerger—Conditions to the Distribution.”

Questions and Answers About the Demerger

The following provides only a summary of the terms of the Demerger. You should read the section entitled “The Demerger” in this information statement for a more detailed description of the matters described below.

Q: Why am I receiving this information statement?

A: Prudential is making this document available to you because you are a Prudential Shareholder. Accordingly, you are entitled to receive one share of JFI’s Class A common stock for every                  Prudential ordinary shares that you hold on the Record Date. Other than approval of the Demerger at the Prudential General Meeting, no action by Prudential Shareholders will be necessary for Prudential Shareholders to receive shares of Class A common stock to which they are entitled in the Demerger. This means that Prudential Shareholders will not be required to pay any consideration for the shares of Class A common stock they receive in the Demerger, surrender or exchange their Prudential ordinary shares in order to receive shares of Class A common stock or take any other action in connection with the Demerger.

Q: What is the Demerger?

A: The Demerger comprises the separation of the Company from the Prudential Group and the distribution by Prudential to its shareholders of shares of JFI’s Class A common stock. To effect the separation, Prudential will make an in-specie distribution of approximately 70.2% of the shares of JFI’s Class A common stock (representing approximately 70.2% of the total combined voting power of JFI’s common stock and approximately 69.2% of JFI’s total common stock) on a pro rata basis to Prudential Shareholders. This will result in two separately listed companies.



 

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Q: What will be the relationship between Prudential and the Company after the Demerger?

A: Following completion of the Demerger, Prudential will hold shares of JFI’s Class A common stock representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock. Subject to market conditions, Prudential intends to monetize a portion of its retained shares of Class A common stock for cash proceeds within 12 months following the completion of the Demerger, such that Prudential expects to own less than 10% of the total combined voting power of our common stock at the end of such period. The Company and Prudential will each operate as separate public companies. Each company has and will continue to have its own board of directors.

The ongoing relationship between Prudential and the Company following the Demerger will be governed by the Demerger Agreement and the Registration Rights Agreement. Some ordinary course arrangements will also remain in place between Prudential and the Company following completion of the Demerger. See “The Demerger” and “Certain Relationships and Related Party Transactions—Relationship with Prudential Following the Demerger.”

Q: Will the number of Prudential ordinary shares or Prudential ADRs I own change as a result of the Demerger?

A: No, the number of Prudential ordinary shares or Prudential ADRs you own will not change as a result of the Demerger.

Q: What are the motivations for the separation?

A: The Prudential Board has concluded that the Prudential Group should focus exclusively on the opportunities offered by its Asia and Africa operations. As discussed in more detail in the Prudential Circular, the Demerger is designed to allow the Prudential Group and the Company to pursue their distinct products, geographic markets and strategies, tailor their risk and capital management policies accordingly, and enhance the efficiency of their respective operating and reporting structures. The Demerger will also allow Prudential shareholders to determine whether to continue to participate in both businesses, or adjust their exposure to each business over time.

Q: Why is the separation of JFI structured as a Demerger?

A: The separation of the Company by way of a distribution of shares of JFI’s Class A common stock is designed to allow the Prudential Group to execute the separation of the Prudential Group and the Company on a more certain and accelerated basis relative to a JFI initial public offering followed by future sell-downs over time. The Demerger will also permit Prudential Shareholders to make their own investment decisions going forward as to whether or not they wish to retain their exposure to the Company, independent of their exposure to the Prudential Group.

Q: What is being distributed in the Demerger?

A: Prudential will distribute approximately 70.2% of the shares of JFI’s Class A common stock in the Demerger (representing approximately 70.2% of the total combined voting power of JFI’s common stock and approximately 69.2% of JFI’s total common stock). The actual number of shares of JFI’s Class A common stock that Prudential will distribute will depend on the number of Prudential ordinary shares issued and outstanding on the Record Date. For more information on our Class A common stock, see “Description of Capital Stock—Common Stock.”

Q: How will the Demerger be implemented?

A: The Demerger is conditional upon, among other things, the passing of the resolution to be proposed as an ordinary resolution at the Prudential General Meeting by a simple majority (i.e., more than 50%) of the voting



 

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rights of Prudential Shareholders who vote on it and the approval of the Demerger by the Prudential Board. The Demerger qualifies as a Class 1 transaction under UK Listing Rules and so requires the approval of Prudential Shareholders at the Prudential General Meeting.

Assuming the conditions are satisfied (or, where applicable, waived), the separation of the Company from the Prudential Group will be effected by Prudential declaring an in-specie distribution of approximately 70.2% of the shares of JFI’s Class A common stock (representing approximately 70.2% of the total combined voting power of JFI’s common stock and approximately 69.2% of JFI’s total common stock) to Qualifying Shareholders. Following completion of the Demerger, Prudential will hold shares of JFI’s Class A common stock representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock.

JFI’s Class A common stock will be issued in book-entry form. Prudential Shareholders who hold certificates or who hold their Prudential ordinary shares in the Prudential Corporate Sponsored Nominee are expected to be eligible for the Jackson Nominee Service. Eligible CSN Holders will receive shares of Class A common stock through the Jackson Nominee Service by default unless, in the case of certificated holders, a valid Form of Election is returned opting out of this service. Prudential Shareholders holding Prudential ordinary shares through the Prudential Corporate Sponsored Nominee will receive shares of Class A common stock through the Jackson Nominee Service, without any option to opt out, in accordance with the terms and conditions of the Prudential Corporate Sponsored Nominee. If you are not eligible for the Jackson Nominee Service or opt out of the service, our transfer agent will credit the whole shares of Class A common stock you receive in the Demerger by way of direct registration in book-entry form to your DRS book-entry account on or shortly after the applicable Distribution Date. For CREST shareholders, whether held beneficially through a broker or directly in the CREST system, CDIs representing the Class A common stock are expected to be credited to the CREST account of such CREST shareholders. You will not receive any physical stock certificates, even if requested. See “The Demerger—When and how you will receive Class A common stock” for a more detailed explanation.

Q: What will I receive in the Demerger?

A: If you are a Qualifying Shareholder, you will be entitled to receive one share of JFI’s Class A common stock for every                  Prudential ordinary shares you hold on the Record Date. Your proportionate interest in Prudential will not change as a result of the Demerger. The transfer agent will distribute only whole shares of our Class A common stock in the Demerger. See “—How will fractional shares be treated in the Demerger?” for more information on the treatment of fractional shares you would otherwise have been entitled to receive in the Demerger. See “The Demerger—Treatment of Fractional Shares.”

If you are a Qualifying Shareholder, you will not need to take any further action after completion of the Demerger to receive a direct registration statement reflecting your ownership of our Class A common stock. Subject to the completion of the Demerger, you will receive the shares of Class A common stock to which you will be entitled (unless you are a Small Shareholder and elect to participate in the Share Sale Option or you are an Eligible CSN Shareholder and have not opted out of the Jackson Nominee Service).

If you own your Prudential ordinary shares beneficially through a CREST nominee or you hold your Prudential shares through a CREST Sponsored Member, it is expected that arrangements will be made for the Class A common stock to be settled through CDIs on or shortly after             , 2021, the Distribution Date for Prudential Shareholders on the UK Register and credited to your CREST account.

If you are eligible for the Jackson Nominee Service and do not elect to opt out of such service, following issuance of the CDIs, the Jackson Nominee Service will receive and hold such CDIs on your behalf and a statement confirming this will be mailed to you within 10 business days of receipt of the CDIs.

If you are a Small Shareholder and want the shares of Class A common stock to which you are entitled to be sold on your behalf under the Share Sale Option and the cash proceeds, net of applicable withholding taxes, to be



 

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paid to you, you must return a completed Form of Election, with the appropriate option selected, to the Sale Agent prior to             , 2021 for Prudential Shareholders on the UK Register and Prudential ADR Holders and             , 2021 for Hong Kong Shareholders. See “The Demerger—Overview of the Share Sale Option.”

If you are a holder of Prudential ADRs, you will receive your entitlement to shares of Class A common stock in the Demerger on             , 2021, the Distribution Date for Prudential ADRs. JPMorgan Chase Bank N.A., in its capacity as the U.S. Depositary for Prudential ADRs, will instruct our transfer agent to deliver the shares of Class A common stock to which the U.S. Depositary is entitled directly to holders of Prudential ADRs, either in a book-entry account at our transfer agent, or for Prudential ADRs held through a bank, broker, or other nominee, to such bank, broker or other nominee.

Following completion of the Demerger, all Prudential Shareholders will continue to own their existing Prudential ordinary shares, all Singapore Holders will continue to have an interest in Prudential ordinary shares through CDP and all holders of Prudential ADRs will continue to own their existing Prudential ADRs, in each case unless they sell or otherwise dispose of them in the usual course.

No payment is required from Prudential Shareholders and no commissions, fees or expenses will be charged to Prudential Shareholders, in connection with the Demerger.

Q: What is the Record Date for the Demerger?

A: The Record Date is expected to be                     UK time on             , 2021 for Prudential Shareholders on the UK Register and for Prudential ADR Holders and                     Hong Kong time on             , 2021 for Prudential Shareholders on the Hong Kong Register.

Q: What is the expected timing of the Demerger?

A: It is expected that the Demerger will be completed on             , 2021.

Q: What is the Distribution Date for the shares of Class A common stock being distributed in the Demerger?

A: The Distribution Date is expected to be             , 2021 for Prudential Shareholders on the UK Register,             , 2021 for Hong Kong Shareholders and             , 2021 for Prudential ADR Holders.

Q: Can Prudential decide to cancel the Demerger, even if all the conditions have been satisfied?

A: Yes. Until the Demerger has been completed, the Prudential Board has the right, in its sole discretion, to terminate the Demerger, even if all the conditions have been satisfied. See “The Demerger—Conditions to the Distribution.”

Q: Will I have to pay any tax as a result of the Demerger?

A: You may be subject to tax in your home jurisdiction on the shares of Class A common stock received and any cash received in lieu of fractional shares based on your particular tax circumstances. The transfer agent will sell a sufficient number of shares of Class A common stock in the open market at the prevailing price to satisfy any required tax withholding. Any excess funds will be refunded as soon as administratively feasible. A summary of certain UK, Hong Kong, Singapore and United States tax consequences in respect of the Demerger relevant to Prudential Shareholders and Singapore Holders who are resident (or, in the case of individuals, resident or domiciled) in the UK, Hong Kong or Singapore or the United States for tax purposes and Prudential ADR Holders is set out in “Certain Material Tax Considerations.” Shareholders receiving cash in lieu of fractional shares or considering exercising the Share Sale Option should review “Certain Material Tax Considerations—U.S. Holders—U.S. Tax Treatment of Demerger to U.S. Holders” and “Certain Material Tax



 

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Considerations—U.S. Taxation of Non-U.S. Holders of Shares of Class A Common Stock—Information Reporting and Backup Withholding”. The summary is intended as a guide only and Prudential Shareholders, Singapore Holders and Prudential ADR Holders are strongly advised to consult with their own legal and tax advisers with respect to the tax consequences in their particular circumstances. Shareholders in jurisdictions outside of the UK, Hong Kong, Singapore or the United States should consult with their own legal and tax advisers with respect to the tax consequences in their particular circumstances under the relevant legislation and regulations.

Q: What do I have to do to participate in the Demerger?

A: Prudential Shareholders are being asked to approve the Demerger at the Prudential General Meeting. In connection with the Prudential General Meeting, Prudential is separately making available to its shareholders the Prudential Circular. The Prudential Circular will contain a form of proxy and describe the procedures for voting the Prudential ordinary shares and other details regarding the Prudential General Meeting. Other than approval of the Demerger at the Prudential General Meeting, no action by Prudential Shareholders will be necessary for Prudential Shareholders to receive shares of Class A common stock to which they are entitled in the Demerger. Qualifying Shareholders will not need to pay any cash or deliver any other consideration, including any Prudential ordinary shares, in order to receive shares of Class A common stock in the Demerger. No commissions, fees or expenses will be charged to Prudential Shareholders in connection with the Demerger.

Q: If I sell my Prudential ordinary shares on or before the applicable Distribution Date, will I still be entitled to receive shares of Class A common stock in the Demerger?

A: If you hold Prudential ordinary shares on the Record Date and decide to sell them on or before             , 2021 for Prudential Shareholders on the UK Register,             , 2021 for Hong Kong Shareholders and             , 2021 for Prudential ADR Holders, you will sell your Prudential ordinary shares without your entitlement to our Class A common stock. If you decide to sell before the Record Date, you should discuss with your bank, broker or other nominee how this may affect your entitlement to the Class A common stock. See “The Demerger—Trading Prior to the Distribution Date” for more information.

Q: How will fractional shares be treated in the Demerger?

A: The transfer agent will not distribute any fractional shares of our Class A common stock to you in connection with the Demerger. Instead, the transfer agent will aggregate all fractional shares into whole shares and sell, or cause to be sold, the whole shares in the open market at prevailing market prices on behalf of Prudential Shareholders entitled to receive fractional shares. The transfer agent will then distribute the aggregate cash proceeds of the sales in U.S. dollars or, after exchange at the prevailing market rates, GBP sterling for Shareholders with an address in the UK or European Economic Area (“EEA”) on the UK Register, Hong Kong dollars for Hong Kong Shareholders and Singapore dollars for Singapore Holders pro rata to these holders, net of applicable withholding taxes. Prudential Shareholders will not be charged any foreign currency exchange fees, which fees will be paid by Prudential on behalf of the Prudential Shareholders. We anticipate that the transfer agent will sell, or cause to be sold, these aggregated fractional shares commencing on             , 2021, the first trading day after the Distribution Date for Prudential ADR Holders. See “The Demerger—Treatment of Fractional Shares.”

Q: Does JFI expect to return capital to stockholders?

A: JFI expects to be in a position to distribute capital of between $325 million and $425 million to our stockholders in the first 12 months following the completion of the Demerger, through cash dividends and/or stock repurchases, depending on market conditions and subject to approval by JFI’s board of directors. Any future declaration of dividends or stock repurchases will be at the discretion of the JFI 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 dividends or repurchasing stock, restrictions imposed by Delaware



 

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law, general business conditions and any other factors that the JFI board of directors deems relevant in making such a determination. Therefore, there can be no assurance that we will pay any dividends to holders of our common stock or approve any stock repurchase program, or as to the amount of any such dividends or stock repurchases. For more information, see “Business—Financial Goals” and “Dividend Policy.”

Q: How will our Class A common stock trade?

A: Currently, there is no public trading market for our Class A common stock. We expect to apply to list our Class A common stock on the NYSE under the symbol JXN. Our Class A common stock will not be listed on any other exchange.

We anticipate that trading in our Class A common stock will begin on a “when-issued” basis on or shortly before             , 2021, the Record Date for Prudential Shareholders on the UK Register, and will continue up to and including             , 2021, the Distribution Date for Prudential ADRs. When-issued trading in the context of a spin-off refers to a sale or purchase made conditionally on or before the Distribution Date because the securities of the spun-off entity have not yet been distributed. We expect that when-issued trades will settle on             , 2021, which is three trading days after the expected Distribution Date for Prudential ADRs. On the ex-distribution date for Prudential ADRs, as determined by the NYSE, which is expected to be             , 2021, any when-issued trading of our Class A common stock will end and “regular-way” trading will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the second full trading day following the date of the trade. See “The Demerger—Trading Prior to the Distribution Date.”

Q: What will happen to my Prudential ordinary shares following the Demerger?

A: The number of Prudential ordinary shares you hold will not change as a result of the Demerger. Following the Demerger, the Prudential ordinary shares will retain their premium listing on the Official List and will continue to be traded on the premium segment for listed securities of the London Stock Exchange Group plc (the “LSE”) and on the main market Stock Exchange of Hong Kong Limited (the “HKSE”). The Prudential ordinary shares will also maintain their secondary listings on the NYSE (in the form of the Prudential ADRs) and the Singapore Exchange Securities Trading Limited (the “SGX-ST”).

Q: What will be the price of Prudential ordinary shares and our Class A common stock following the Demerger?

A: There is no certainty as to the price of Prudential ordinary shares or our Class A common stock following the Demerger. The price at which Prudential ordinary shares and our Class A common stock may be quoted, and the price which investors may realize for such shares, will be influenced by a large number of factors. Some of these may be specific to either the Prudential Group or the Company and their respective operations, and others may affect the industries in which they operate, other comparable companies or publicly-traded companies as a whole. The price of Prudential ordinary shares may also be affected by the exchange on which they trade. There can be no assurance that, following the completion of the Demerger, the combined trading prices of the Prudential ordinary shares and our Class A common stock will equal or exceed what the trading price of Prudential ordinary shares would have been in the absence of the Demerger. Following completion of the Demerger, Prudential’s share price is expected to fall to reflect the value of the shares of Class A common stock delivered to Prudential Shareholders. It is possible that after the completion of the Demerger, the combined equity value of Prudential and JFI will be less than Prudential’s equity value before the Demerger.

Q: Will the Demerger lead to a change in how the two businesses are run?

A: Following the completion of the Demerger, the Company and the Prudential Group will be clearly delineated by geography, products and services, business model and customers. Our business is focused on providing retirement savings and income strategies aimed at the large population approaching or in retirement in the United States, whereas the Prudential Group is primarily focused on providing health, protection and savings



 

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products in Asia and Africa. The Company and Prudential will each operate as independent and separately listed companies. Each company has and will continue to have its own board of directors and management teams.

Q: What does Prudential intend to do with any shares of Class A common stock it retains?

A: Subject to market conditions, Prudential intends to monetize a portion of its retained shares of Class A common stock for cash proceeds within 12 months following the completion of the Demerger, such that Prudential expects to own less than 10% of the total combined voting power of JFI’s common stock at the end of such period. There will be no special governance rights related to Prudential’s retained equity interest, and Prudential intends to classify the retained equity interest as a financial investment. In connection with disposition of control filings with the Michigan Department of Insurance and Financial Services (“DIFS”) and the New York State Department of Financial Services (“NYSDFS”) as part of the Demerger process, Prudential has also agreed to certain governance restrictions relating to its ongoing ownership of shares of our common stock. See “Certain Relationships and Related Party Transactions—Relationship with Prudential Following the Demerger—Certain Insurance Regulatory Governance Restrictions on Prudential.”

Q: Who is the transfer agent and registrar for our Class A common stock?

A: Equiniti Trust Company will serve as transfer agent and registrar for our Class A common stock.

Q: Are there risks associated with owning shares of Class A common stock ?

A: Yes. Our business faces both general and specific risks and uncertainties. Our business also faces risks relating to the Demerger. Following the Demerger, we will also face risks associated with being a separate, publicly-traded company. Accordingly, you should read carefully the information set forth in the section entitled “Risk Factors” in this information statement.

Q: What is the Share Sale Option and why is it being offered?

A: The Share Sale Option will be available to all Small Shareholders (including Prudential ADR Holders), which will allow them to elect to have the Class A common stock to which they will be entitled upon completion of the Demerger sold on their behalf and the cash proceeds, net of applicable withholding taxes, paid to them instead. It is expected that the Share Sale Option will be compulsory for Singapore Holders. It is expected that the Sale Agent will have until             , 2021, the date that is 60 days from the Distribution Date for Prudential Shareholders on the UK Register, to make the sales for participating Small Shareholders. The sale proceeds from the sale of shares of Class A common stock under the Share Sale Option will be pooled together and the amount of money due to each participating Small Shareholder will be calculated on an averaged basis so that all participating Small Shareholders will receive the same price per share of Class A common stock, subject to rounding.

Q: How can I elect to participate in the Share Sale Option?

A: Small Shareholders will receive a Form of Election pursuant to which they may elect to participate in the Share Sale Option if they are eligible. If you are a Small Shareholder, you should complete, sign and return the Form of Election in accordance with the instructions set out in the Form of Election. Shareholders other than Small Shareholders will not be eligible to elect the Share Sale Option on the Form of Election. See “The Demerger—Overview of the Share Sale Option.”

Q: What will happen after a valid Form of Election is returned?

A: Depending on your election and how your Prudential ordinary shares were held on the Record Date, either the shares of Class A common stock to which you are entitled upon completion of the Demerger will be sold by the Sale Agent, you will receive a direct registration statement in respect of shares of Class A common



 

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stock or you will receive your shares of Class A common stock in the form of CDIs either through the Jackson Nominee Service or in the CREST account in which you held your Prudential shares on the Record Date. The Record Date is expected to occur at                  Hong Kong time on             , 2021 for Hong Kong Shareholders,                  and UK time on             , 2021 for Prudential Shareholders on the UK Register and Prudential ADR Holders. It is expected that a check for the sale proceeds, net of applicable withholding taxes, for shareholders electing the share sale option will be mailed to you at your own risk or, for Prudential Shareholders with a UK or EEA address on the UK register, BACS payment will be made to the mandated bank account if registered with Equiniti Limited for the payment of dividends by no later than              , 2021, or a direct registration statement, or Jackson Nominee Service statement, in respect of shares of Class A common stock will be mailed at your own risk by             , 2021 depending on your election. Prudential Shareholders will not be charged any foreign currency exchange fees, which fees will be paid by Prudential on behalf of the Prudential Shareholders.

Q: What will happen if no valid Form of Election is returned in time?

A: If you do not return a valid Form of Election in time, you will receive a direct registration statement in respect of shares of Class A common stock following completion of the Demerger, unless you are an Eligible CSN Shareholder, in which case JFI has made arrangements for the Jackson Nominee Service to receive in the Demerger and hold CDIs representing the Class A common stock due to you and maintain an underlying register as a record of the stockholders in the Jackson Nominee Service. It is expected that direct registration statements, or Jackson Nominee Service statement, in respect of your shares of Class A common stock will be mailed no later than             , 2021.

Q: Is the settlement process longer if I elect to participate in the Share Sale Option?

A: Yes. There is a longer period for settlement following completion of the Demerger for Small Shareholders who take the Share Sale Option and Singapore Holders. It is expected that the Sale Agent will have until             , 2021, the date that is 60 days from the Distribution Date for Prudential Shareholders on the UK Register, to make the sales for Small Shareholders and Singapore Holders.

Q: Where can I get more information?

A: If you have any questions relating to the mechanics of the Demerger, you should contact the appropriate helpline as noted below.

The UK helpline will be operated by Equiniti Limited and will be available on 0333 207 6392 (from inside the UK) or +44 333 207 6392 (from outside the UK). The helpline will be available from 8:30 am to 5:30 pm UK time Monday to Friday (except public holidays in England and Wales) and will remain open until             , 2021. Calls to the helpline from outside of the UK will be charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored for security and training purposes.

The Hong Kong helpline will be operated by Computershare Hong Kong Investor Services Limited and will be available on                . The helpline will be available from                 Hong Kong time Monday to Friday (except on public holidays) and will remain open until            , 2021.

Singapore Holders may also refer queries to CDP at                 or by telephone on                .

Questions regarding shares held in depository agent sub-accounts should be directed to the relevant depository agent or broker.

Prudential ADR Holders may refer queries relating to their accounts to the U.S. Depositary at JPMorgan Chase Bank, N.A,                 . The telephone number is                 (from inside the U.S.) or                 (from outside the U.S.) and the website log-in at www.adr.com.



 

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The helpline operators will not provide advice on the merits of the Demerger or give any legal, financial or taxation advice, for which you are recommended to consult your own legal, financial or taxation adviser. Alternatively, consult your stockbroker, bank manager, solicitor, accountant and/or other independent professional adviser.

Before the applicable Distribution Date, if you have any questions relating to the Demerger, you should contact Prudential at:

Prudential plc

1 Angel Court

London EC2R 7AG, England

Attention: Investor Relations

After the applicable Distribution Date, if you have any questions relating to the Company, you should contact us at:

Jackson Financial Inc.

1 Corporate Way

Lansing, Michigan 48951

Attention: Investor Relations

After the applicable Distribution Date, if you have any questions relating to Prudential, you should contact Prudential at:

Prudential plc

1 Angel Court

London EC2R 7AG, England

Attention: Investor Relations



 

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SUMMARY OF THE DEMERGER

 

Distributing Company

Prudential plc, a public limited company organized under the laws of England and Wales. Prudential owns approximately 90.2% of JFI’s outstanding Class A common stock (representing approximately 90.1% of the total combined voting power of JFI’s common stock and approximately 88.9% of JFI’s total common stock) prior to the Demerger. After the completion of the Demerger, Prudential will hold shares of JFI’s Class A common stock representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock.

 

Distributed Company

Jackson Financial Inc., a Delaware corporation and majority-owned subsidiary of Prudential. After the completion of the Demerger, we will be a separate, publicly-traded company.

 

Distributed Securities

Approximately 70.2% of the shares of Class A common stock owned by Prudential (representing approximately 70.2% of the total combined voting power of JFI’s common stock and approximately 69.2% of JFI’s total common stock). Based on the approximately                     Prudential ordinary shares issued and outstanding on             , 2021, and applying the distribution ratio of one share of Class A common stock for every                 Prudential ordinary shares, approximately                 shares of Class A common stock will be distributed in the Demerger.

 

Record Date

The Record Date is expected to be                  UK time on            , 2021 for Prudential Shareholders on the UK Register and for Prudential ADR Holders and                 Hong Kong time on             , 2021 for Prudential Shareholders on the Hong Kong Register.

 

Distribution Date

The Distribution Date is expected to be             , 2021 for Prudential Shareholders on the UK Register,            , 2021 for Hong Kong Shareholders and             , 2021 for Prudential ADR Holders.

 

Distribution Ratio

Each Prudential Shareholder will receive one share of JFI’s Class A common stock for every                 Prudential ordinary shares it holds on the Record Date. The transfer agent will distribute only whole shares of our Class A common stock in the Demerger. See “The Demerger—Treatment of Fractional Shares” for more detail. Please note that if you sell your Prudential ordinary shares on or before the Distribution Date, the buyer of those shares may in some circumstances be entitled to receive the shares of Class A common stock issuable in respect of the Prudential ordinary shares that you sold. See “The Demerger—Trading Prior to the Distribution Date.”

 

The Distribution

Upon the completion of the Demerger, Prudential will release approximately 70.2% of the shares of JFI’s Class A common stock for distribution to Prudential Shareholders. Our transfer agent will credit whole shares of Class A common stock you receive in the Demerger by way of direct registration in book-entry form to your DRS account, your account in CREST or through the Jackson Nominee Service. You will not receive physical stock certificates.



 

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Our transfer agent will credit your shares of Class A common stock to you on or shortly after the applicable Distribution Date. Prudential Shareholders will not be required to pay any consideration for the shares of Class A common stock they receive in the Demerger or surrender or exchange their Prudential ordinary shares in connection with the Demerger. After the Prudential General Meeting, no further action by Prudential Shareholders will be necessary for Prudential Shareholders to receive the shares of Class A common stock to which they are entitled in the Demerger. No commissions, fees or expenses will be charged to Prudential Shareholders in connection with the Demerger.

 

Fractional Shares

Prudential will not distribute any fractional shares of our Class A common stock to Prudential Shareholders. Instead, the transfer agent will first aggregate fractional shares into whole shares, then sell, or cause to be sold, the whole shares in the open market at prevailing market prices on behalf of Prudential Shareholders who would otherwise have been entitled to receive a fractional share, and finally distribute the aggregate cash proceeds of the sales pro rata to these holders, net of applicable withholding taxes. If you receive cash in lieu of fractional shares, you will not be entitled to any interest on the proceeds.

 

Share Sale Option

Small Shareholders may elect to have all the shares of Class A common stock that they are entitled to receive in the Demerger sold by the Sale Agent and the cash proceeds, net of applicable withholding taxes, remitted to them instead. It is expected that the Sale Agent will have 60 days from the Distribution Date for Prudential Shareholders on the UK Register to make the sales for participating Small Shareholders. The Share Sale Option is described in more detail in “The Demerger—Overview of the Share Sale Option.”

 

Prudential ADRs

If you are a holder of Prudential ADRs, you will receive your entitlement to shares of Class A common stock in the Demerger in book-entry form in an account at our transfer agent or through your bank, broker or other nominee, if applicable, on             , 2021, the Distribution Date for Prudential ADRs. See “The Demerger—Treatment of Prudential ADRs.” The Share Sale Option will be available to Prudential ADR Holders who are registered holders of 5,000 or fewer Prudential ADRs.

 

Conditions to the Distribution

Certain aspects of the Demerger Agreement are conditional upon the following:

 

   

the approval of the Demerger by Prudential Shareholders at the Prudential General Meeting;

 

   

the approval of the Demerger by the Prudential Board;

 

   

completion of the pre-completion reorganization (whereby all of the shares of Class A common stock held by PUSH are distributed to PCAL, and then such shares are distributed from PCAL to Prudential to ensure that, immediately prior to



 

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completion of the Demerger, JFI is a direct majority-owned subsidiary of Prudential) and the reclassification of our common stock;

 

   

that the Form 10, of which this information statement is a part, has been declared effective by the SEC under the Exchange Act, no stop order suspending the effectiveness of the Form 10 will be in effect and no proceedings for that purpose will be pending before or threatened by the SEC;

 

   

any regulatory approvals that have been obtained and which are required for the implementation of the Demerger not having been withdrawn, revoked or rescinded (and such regulatory approvals not having lapsed);

 

   

Prudential’s sponsor’s agreement with Goldman Sachs International not having terminated;

 

   

acceptance by the NYSE of our Class A common stock for listing, subject to official notice of issuance; and

 

   

the no objection letter issued by the Hong Kong Stock Exchange regarding the Demerger pursuant to Practice Note 15 of the Hong Kong Listing Rules has not be withdrawn.

 

Dividend policy

Consistent with our goals to manage risk and capital and optimize our financial leverage, we generally intend to target return of capital to our stockholders on an annual basis of approximately 40-60% of the annual change in our excess capital, adjusted for any capital contributions and distributions. JFI expects to be in a position to distribute capital of between $325 million and $425 million to its stockholders in the first 12 months following the completion of the Demerger, through cash dividends and/or stock repurchases, depending on market conditions and subject to approval by JFI’s board of directors. Any declaration of cash dividends or stock repurchases will be at the discretion of the JFI 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 the JFI board of directors deems relevant in making such a 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. See “Dividend Policy.”

 

Trading Market and Symbol

We expect to apply to list our Class A common stock on the NYSE under the symbol JXN. We anticipate that on or shortly before             , 2021, the Record Date for Prudential Shareholders on the UK Register, trading of shares of Class A common stock will begin on a “when-issued” basis and will continue up to and including             , 2021, the Distribution Date for Prudential ADRs. We expect that “regular-way” trading of our Class A common stock will begin on



 

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             2021, the first trading day after the Distribution Date for Prudential ADRs. See “The Demerger—Trading Prior to the Distribution Date.”

 

  Following the Demerger, the Prudential ordinary shares will retain their premium listing on the Official List and will continue to be traded on the premium segment for listed securities of the LSE and on the main market HKSE. The Prudential ordinary shares will also maintain their secondary listings on the NYSE (in the form of the Prudential ADRs) and the SGX-ST.

 

Tax Consequences of the Distribution

A summary of certain UK, Hong Kong, Singapore and United States tax consequences in respect of the Demerger relevant to Prudential Shareholders and Singapore Holders who are resident (or, in the case of individuals, resident or domiciled) in the UK, Hong Kong, Singapore or United States for tax purposes and Prudential ADR Holders is set out in “Certain Material Tax Considerations.” The summary is intended as a guide only and Prudential Shareholders, Singapore Holders or Prudential ADR Holders who are in doubt about their tax position are strongly advised to contact an appropriate professional, independent adviser immediately.

 

Relationship with Prudential after the Distribution

We have entered into certain agreements with Prudential related to the Demerger, which will govern the relationship between Prudential and us up to and after completion of the Demerger. These agreements include:

 

   

the Demerger Agreement that sets forth Prudential and our agreements regarding the conditions precedent to the Demerger and the principal actions that Prudential and we will take in connection with the Demerger and aspects of our relationship following the Demerger, in respect of, among other things, access to data, mutual indemnities, taxes and cost sharing; and

 

   

the Registration Rights Agreement providing Prudential with certain rights requiring us to register under the Securities Act of 1933, as amended (the “Securities Act”), the shares of Class A common stock held by Prudential following the completion of the Demerger.

 

  See “Certain Relationships and Related Party Transactions— Relationship with Prudential Following the Demerger.”

 

Transfer Agent

Equiniti Trust Company will serve as transfer agent of our Class A common stock.

 

Risk Factors

Our business faces both general and specific risks and uncertainties. Our business also faces risks relating to the Demerger. Following the completion of the Demerger, we will also face risks associated with being a separate, publicly-traded company. Accordingly, you should read carefully the information set forth under “Risk Factors.”


 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth our summary historical consolidated financial data derived from our consolidated financial statements as of the dates and for each of the periods indicated. The summary historical consolidated financial data as of December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020 set forth below have been derived from our financial statements included elsewhere in this information statement. Our historical results are not necessarily indicative of the results to be expected for any future period.

You should read this summary historical consolidated financial data in conjunction with the sections entitled “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements included elsewhere in this information statement.

 

     Years Ended December 31,  
     2020      2019      2018  
     (in millions)  

Statement of Income (Loss) Data

        

Revenues

        

Fee income

   $ 6,604.0      $ 6,412.9      $ 6,259.9  

Advisory and wealth management fees

     —          —          47.8  

Premium

     159.5        567.4        5,153.8  

Net investment income

     2,038.4        2,813.2        2,649.7  

Net losses on derivatives and investments

     (3,999.4      (6,383.9      (498.8

Other income

     64.0        68.8        65.0  
  

 

 

    

 

 

    

 

 

 

Total revenues

     4,866.5        3,478.4        13,677.4  
  

 

 

    

 

 

    

 

 

 

Benefits and Expenses

        

Death, other policy benefits and change in policy reserves, net of deferrals

     1,283.8        1,464.4        6,967.0  

Interest credited on other contract holder funds, net of deferrals

     1,210.0        1,640.5        1,556.2  

Interest expense

     88.4        98.5        86.2  

Operating costs and other expenses, net of deferrals

     984.1        2,067.0        1,583.9  

Cost of reinsurance

     2,520.1        —          —    

Amortization of deferred acquisition and sales inducement costs

     (389.2      (980.7      1,091.5  
  

 

 

    

 

 

    

 

 

 

Total benefits and expenses

     5,697.2        4,289.7        11,284.8  
  

 

 

    

 

 

    

 

 

 

Pretax (loss) income before noncontrolling interests

     (830.7      (811.3      2,392.6  

Income tax (benefit) expense

     (495.0      (368.9      338.3  
  

 

 

    

 

 

    

 

 

 

Net (loss) income

     (335.7      (442.4      2,054.3  

Less: Net (loss) income attributable to noncontrolling interests

     (3.6      54.7        68.7  
  

 

 

    

 

 

    

 

 

 

Net (loss) income attributable to Jackson Financial Inc.

   $ (332.1    $ (497.1    $ 1,985.6  
  

 

 

    

 

 

    

 

 

 


 

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     December 31,  
     2020      2019      2018  
     (in millions)  

Balance Sheet Data (at period end)

        

Assets

        

Total investments

   $ 49,272.4      $ 73,237.4      $ 66,541.8  

Cash and cash equivalents

     1,624.5        1,911.1        3,935.2  

Reinsurance recoverable

     35,222.2        8,372.4        8,462.0  

Funds withheld reinsurance assets, at fair value under fair value option

     3,626.5        3,760.3        3,747.2  

Other assets

     16,257.0        14,578.3        13,345.9  

Separate account assets

     219,062.9        195,070.5        163,301.4  
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 325,065.5      $ 296,930.0      $ 259,333.5  
  

 

 

    

 

 

    

 

 

 

Liabilities and Equity

        

Liabilities

        

Reserves for future policy benefits and claims payable

   $ 21,380.9      $ 19,136.4      $ 19,620.2  

Other contract holder funds

     64,538.4        64,304.5        60,720.6  

Funds held under reinsurance treaties, at fair value under fair value option

     3,626.5        3,760.3        3,745.1  

Debt

     322.0        2,691.8        331.9  

Other liabilities

     6,097.7        4,709.7        3,751.7  

Separate account liabilities

     219,062.9        195,070.5        163,301.4  
  

 

 

    

 

 

    

 

 

 

Total liabilities

     315,028.4        289,673.2        251,470.9  
  

 

 

    

 

 

    

 

 

 

Equity

        

Additional paid-in capital

     5,927.8        3,077.8        5,077.8  

Shares held in trust

     (4.3      (4.3      (11.4

Equity compensation reserve

     7.7        0.5        4.2  

Accumulated other comprehensive income, net of tax expense (benefit)

     2,634.1        2,332.9        (336.1

Retained earnings

     978.2        1,365.8        2,737.9  
  

 

 

    

 

 

    

 

 

 

Total stockholders’ equity

     9,543.5        6,772.7        7,472.4  

Noncontrolling interests

     493.6        484.1        390.2  
  

 

 

    

 

 

    

 

 

 

Total equity

     10,037.1        7,256.8        7,862.6  
  

 

 

    

 

 

    

 

 

 

Total liabilities and equity

   $ 325,065.5      $ 296,930.0      $ 259,333.5  
  

 

 

    

 

 

    

 

 

 


 

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     Years Ended December 31,  
     2020     2019     2018  
     (in millions)  

Segment Financial Data

      

Operating Revenues

      

Retail Annuities

   $ 4,478.5     $ 4,949.6     $ 4,955.4  

Institutional Products

     356.4       449.7       381.3  

Closed Life and Annuity Blocks

     1,526.8       1,995.7       6,476.1  

Corporate and Other(1)

     148.9       147.4       129.7  
  

 

 

   

 

 

   

 

 

 

Total Operating Revenues

   $ 6,510.6     $ 7,542.4     $ 11,942.5  
  

 

 

   

 

 

   

 

 

 

Operating Benefits and Expenses

      

Retail Annuities

   $ 2,472.6     $ 2,663.1     $ 3,206.9  

Institutional Products

     271.3       344.1       279.3  

Closed Life and Annuity Blocks

     1,526.6       1,995.3       6,403.8  

Corporate and Other(1)

     265.8       213.9       138.0  
  

 

 

   

 

 

   

 

 

 

Total Operating Benefits and Expenses

   $ 4,536.3     $ 5,216.4     $ 10,028.0  
  

 

 

   

 

 

   

 

 

 

Pretax Adjusted Operating Earnings

      

Retail Annuities

   $ 2,005.9     $ 2,286.5     $ 1,748.5  

Institutional Products

     85.1       105.6       102.0  

Closed Life and Annuity Blocks

     0.2       0.4       72.3  

Corporate and Other(1)

     (116.9     (66.5     (8.3
  

 

 

   

 

 

   

 

 

 

Total Pretax Adjusted Operating Earnings

   $ 1,974.3     $ 2,326.0     $ 1,914.5  
  

 

 

   

 

 

   

 

 

 
     Years Ended December 31,  
     2020     2019     2018  
     (in millions)  

Non-GAAP Financial Measures

      

Adjusted Operating Earnings(2)

   $ 1,880.2     $ 2,036.0     $ 1,676.6  
  

 

 

   

 

 

   

 

 

 

Adjusted Operating ROE(2)

     27.4     27.9     23.7

 

(1)

Corporate and Other includes the intersegment eliminations in order to tie to total consolidated.

(2)

See “Key Non-GAAP Financial Measures and Operating Measures” for information regarding these non-GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures.



 

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SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA

The summary unaudited pro forma financial data consists of the unaudited pro forma condensed balance sheet and statement of income (loss) for the year ended December 31, 2020. The summary unaudited pro forma financial data should be read in conjunction with the information included under “Unaudited Pro Forma Condensed Financial Information,” “Recapitalization,” “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included elsewhere in this information statement. We believe the unaudited pro forma condensed financial information presented below is useful to investors because it presents our historical results of operations for the periods presented giving effect to the debt financing transactions, debt restructuring transactions and Athene Reinsurance Transaction as if they had occurred at the beginning of such period.

The following unaudited pro forma condensed financial information presents the historical financial statements of the Company as if the debt financing transactions had been completed as of December 31, 2020 for purposes of the unaudited pro forma condensed balance sheet and as if the debt financing transactions, debt restructuring transactions and Athene Reinsurance Transaction had been completed as of January 1, 2020 for purposes of the unaudited pro forma condensed statement of income (loss).

The unaudited pro forma condensed financial information is presented for informational purposes only and does not purport to represent our financial condition or our results of operations had the debt financing transactions, debt restructuring transactions and Athene Reinsurance Transaction occurred on or as of the dates noted above or to project the results for any future date or period.

Unaudited Pro Forma Condensed Balance Sheet

as of December 31, 2020

 

     As Reported      Debt
Financing
     Pro Forma  
     (in millions, except share and per share data)  

Assets

        

Total investments

   $ 49,272.4      $ —        $ 49,272.4  

Cash and cash equivalents

     1,624.5        2,293.4        3,917.9  

Deferred acquisition costs

     13,343.0        —          13,343.0  

Reinsurance recoverable

     35,222.2        —          35,222.2  

Funds withheld reinsurance assets

     3,626.5        —          3,626.5  

Deferred income taxes

     1,026.3        —          1,026.3  

Other assets

     1,887.7        15.0        1,902.7  

Separate account assets

     219,062.9        —          219,062.9  
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 325,065.5      $ 2,308.4      $ 327,373.9  
  

 

 

    

 

 

    

 

 

 

Liabilities and Equity

        

Liabilities

        

Reserves for future policy benefits and claims payable

   $ 21,380.9      $ —        $ 21,380.9  

Other contract holder funds

     64,538.4        —          64,538.4  

Debt

     322.0        2,350.0        2,672.0  

Funds held under reinsurance treaties

     3,626.5        —          3,626.5  

Other liabilities

     6,097.7        —          6,097.7  

Separate account liabilities

     219,062.9        —          219,062.9  
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 315,028.4      $ 2,350.0      $ 317,378.4  
  

 

 

    

 

 

    

 

 

 


 

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     As Reported     Debt
Financing
    Pro Forma  
     (in millions, except share and per share data)  

Equity

      

Common stock, (i) Class A common stock 1,000 and              shares authorized, $0.01 par value per share, and 887 and              shares issued and outstanding at December 31, 2020 (as reported and pro forma) (ii) Class B common stock 1,000 and              shares authorized, $0.01 par value per share, and 13 and              shares issued and outstanding at December 31, 2020 (as reported and pro forma)

     —         —         —    

Additional paid-in capital

     5,927.8       —         5,927.8  

Shares held in trust

     (4.3     —         (4.3

Equity compensation reserve

     7.7       —         7.7  

Accumulated other comprehensive income, net of tax expense (benefit)

     2,634.1       —         2,634.1  

Retained earnings

     978.2       (41.6     936.6  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     9,543.5       (41.6     9,501.9  

Noncontrolling interests

     493.6       —         493.6  
  

 

 

   

 

 

   

 

 

 

Total equity

     10,037.1       (41.6     9,995.5  
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 325,065.5     $ 2,308.4     $ 327,373.9  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity excluding accumulated other comprehensive income, net of tax expense (benefit)

   $ 6,909.4       N/A     $ 6,867.8  
  

 

 

   

 

 

   

 

 

 

Total financial leverage ratio(1)

     4.5     N/A       28.0
  

 

 

   

 

 

   

 

 

 

 

(1)

Total financial leverage is the ratio of total debt to combined total debt and stockholders’ equity, excluding accumulated other comprehensive income, net of tax expense (benefit).

Unaudited Pro Forma Condensed Statement of Income (Loss) Data

Year Ended December 31, 2020

 

     As
Reported
    Debt
Financing
     Athene
Reinsurance
Transaction
    Debt
Restructuring
    Pro Forma  
    

(in millions)

 

Revenues

           

Fee income

   $ 6,604.0     $ —        $ (44.0   $ —       $ 6,560.0  

Premium

     159.5       —            —         159.5  

Net investment income

     2,038.4       —          (392.1     —         1,646.3  

Net losses on derivatives and investments

     (3,999.4     —          144.9       —         (3,854.5

Other income

     64.0       —          21.3       —         85.3  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     4,866.5       —          (269.9     —         4,596.6  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Benefits and Expenses

           

Death, other policy benefits and change in policy reserves, net of deferrals

     1,283.8       —          (21.7     —         1,262.1  

Interest credited on other contract holder funds, net of deferrals

     1,210.0       —          (258.2     —         951.8  

Interest expense

     88.4       52.6        —         (44.6     96.4  

Operating costs and other expenses, net of deferrals

     984.1       —          (49.7     —         934.4  


 

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     As
Reported
    Debt
Financing
    Athene
Reinsurance
Transaction
    Debt
Restructuring
    Pro
Forma
 
    

(in millions)

 

Cost of Reinsurance

     2,520.1       —         —         —         2,520.1  

Amortization of deferred acquisition and sales inducement costs

     (389.2     —         (16.0     —         (405.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total benefits and expenses

     5,697.2       52.6       (345.6     (44.6     5,359.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pretax (loss) income before noncontrolling interests

     (830.7     (52.6     75.7       44.6       (763.0

Income tax (benefit) expense

     (495.0     (11.0     30.9       9.4       (465.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (335.7     (41.6     44.8       35.2       (297.3

Less: Net (loss) income attributable to noncontrolling interests

     (3.6     —         —         —         (3.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Jackson Financial Inc.

   $ (332.1   $ (41.6   $ 44.8     $ 35.2     $ (293.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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RISK FACTORS

You should consider and read carefully all of the risks and uncertainties described below, as well as the other information contained in this information statement, including our financial statements included elsewhere in this information statement. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could cause a material adverse effect on our business, financial condition, results of operations and cash flows. In any such case, the trading price of our Class A common stock could decline. In addition, many of these risks are interrelated and could occur under similar business and economic conditions, and the occurrence of certain of them could in turn cause the emergence or exacerbate the effect of others. This information statement also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below. See “Special Note Regarding Forward-Looking Statements and Information.”

Risks Relating to Our Consolidated Business

Risks Relating to Conditions in the Financial Markets and Economy

General conditions in the global capital markets and the economy could have a material adverse effect on our business, financial condition, results of operations and cash flows.

General conditions in the global capital markets and the economy generally, both in the United States and elsewhere around the world, could materially and adversely impact our business, financial condition, results of operations and cash flows. Factors such as the COVID-19 pandemic, civil unrest, high unemployment levels, availability and cost of credit, geopolitical issues and trade disputes have contributed to increased volatility in worldwide financial markets and significant disruptions and diminished expectations for the economy and markets. For example, these factors, combined with declining business and consumer confidence, general economic uncertainty, stay-at-home orders and business shutdowns, caused a slowdown in economic activity beginning in March 2020. In addition, beginning in the first quarter of 2020, the fixed-income markets experienced a period of extreme volatility which from time to time negatively impacted market liquidity conditions. During periods of market upheaval and economic uncertainty, we are likely to experience periods of significant volatility in global capital and equity markets, interest rates (which in some jurisdictions have become negative) and liquidity. Debt and equity capital market volatility and reduced investment returns, including any resulting impairment of debt securities and loans, could reduce our capital and impair our ability to write new business, increase the potential adverse impact of optional guarantee benefits included in our annuities, and have a negative impact on our assets under management and profitability. In an economic downturn, the demand for our annuities could decline. We could experience an elevated incidence of claims, and lapses or surrenders of policies could increase. Our customers may choose to defer paying premiums or stop paying premiums altogether. Adverse market conditions could affect the availability and cost of reinsurance protections and the availability and effectiveness of hedging instruments in ways that could materially and adversely affect our profitability. For the reasons described above, in the event of an economic downturn, we could incur significant losses. Even in the absence of an economic downturn, we are exposed to substantial risk of loss in our investment portfolio due to market volatility. Disruptions in one market or asset class could also spread to other markets or asset classes.

Market volatility, economic uncertainty and increased regulatory and operational risks resulting from the geopolitical environment could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Recent shifts in the focus of some national governments toward more protectionist or restrictive economic and trade policies, and international trade disputes, could impact the macroeconomic outlook and the environment for global financial markets.

 

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Equity market declines and volatility could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

We face equity risk from our asset portfolio, our derivative hedging program and the products we sell. Declines or volatility in equity markets could negatively impact our investment returns as well as our business, financial condition, results of operations and cash flows. Our variable annuity business in particular is highly sensitive to the condition of equity markets, and sustained weakness or stagnation in equity markets would decrease our revenues and earnings with respect to variable annuities. Declining equity markets or prolonged periods of depressed equity market returns will also reduce the account balances of our variable annuity contracts, which could reduce our profitability because we collect fees and risk charges based on these account balances. Lower variable annuity account balances also impact the profitability of variable annuity contracts that include a guaranteed minimum withdrawal feature that entitles the contract owner to withdraw a contractually determined amount each year that is a percentage of his or her benefit base or total guaranteed amount.

Market volatility could negatively impact the value of equity securities in our investment portfolio, which could in turn reduce the statutory capital of certain of our insurance subsidiaries. An equity market downturn could have a negative impact on the fair value of our investments in limited partnerships or other alternative assets, which could have an adverse effect on our results of operations. Equity market declines and volatility could also influence policyholder behavior, which could adversely impact the levels of surrenders and amounts of withdrawals of our annuities or cause customers to reallocate a portion of their account balances to more conservative investment options (which generally have lower fees). These actions could negatively impact our profitability or increase our benefit obligations, particularly if customers were to remain in such conservative investment options during an equity market increase. If customers reallocate to less conservative investment options, such as through rebalancing actions after an equity market decrease, the volatility of our financial results could increase. In addition, equity market volatility could reduce demand for variable annuities, lead to changes in estimates underlying our calculations of deferred acquisition costs (“DAC”) that, in turn, could accelerate our DAC amortization and reduce our current earnings and result in changes to the fair value of our optional guarantee benefit liabilities, which could increase the volatility of our results of operations.

Market volatility could also increase our need for additional hedging and increase the costs of the derivatives we use for hedging. In addition, we may not be able to mitigate effectively the equity market volatility of our portfolio, including through our hedging strategies, which could lead to economic losses or increased volatility in earnings. For example, we are 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. In addition, we may sometimes choose, based on economic considerations and other factors, not to fully mitigate the equity market volatility of our portfolio. For example, in periods of high market volatility or adverse conditions, the availability of the derivatives we use for hedging could decrease, or the cost of such derivatives could increase, making it either impossible or impractical to mitigate effectively the equity market volatility of our portfolio.

Volatility in interest rates and credit spreads or prolonged periods of low interest rates could have an adverse effect on our business, financial condition, results of operations and cash flows.

Changes in interest rates and credit spreads could result in fluctuations in the income derived from our investments and could cause a material adverse effect on our business, financial condition, results of operations and cash flows. A significant proportion of our business is based upon the difference between the returns we are able to earn on our assets and the interest and other benefits payable to our customers. A significant portion of our assets are invested in fixed income securities, and our results are therefore affected by fluctuations in prevailing interest rates and credit spreads. In particular, fixed annuities and institutional products expose us to the risk that changes in interest rates, which are not fully reflected in the interest rates credited to customers, will

 

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reduce spread. Significant volatility in interest rates could have a larger adverse impact on certain assets in our investment portfolio that are highly structured or have limited liquidity. Interest rate risk exposure for variable annuities increases when the present value of expected future benefit payments increases. The present value of expected future benefit payments increases as a result of, among other things, equity market underperformance, low interest rates, adverse policyholder behavior and increased longevity. As a result, lower interest rates increase our variable annuity exposure and generally lead to increased hedging.

We are exposed primarily to the following risks arising from fluctuations in interest rates:

 

   

the risk of mismatch between the expected duration of liabilities and investments held by us;

 

   

the reinvestment risk associated with accelerated prepayments on mortgage-backed securities and other fixed income securities in decreasing interest rate environments and delayed prepayments in increasing interest rate environments;

 

   

the risk of increases in statutory reserve requirements, which would reduce statutory capital, and increases in capital requirements, which would reduce surplus, due to decreases in interest rates or changes in prescribed interest rates;

 

   

the risk of increases in the costs of derivatives we use for hedging or increases in the volume of hedging we do as interest rates decrease;

 

   

the risk of loss related to customer withdrawals following a sharp and sustained increase in interest rates;

 

   

the risk of loss from reduced fee income, increased guaranteed benefit costs and accelerated DAC amortization arising from fluctuations in the variable annuity separate account values associated with fixed income investment options due to increased interest rates or credit spread widening; and

 

   

the risk of volatility in our U.S. GAAP results of operations driven by interest rate related components of liabilities and equity related to optional guarantee benefits and the cost of associated hedges in low interest rate environments.

Sustained declines in long-term interest rates could result in increased redemptions of our fixed maturity securities that are subject to redemption prior to maturity by the issuer and expose us to reinvestment risk. If we are unable to reinvest the proceeds from such redemptions into investments with credit quality and yield characteristics similar to the redeemed securities, our net income and overall financial performance could be adversely affected. We may need to maintain crediting rates for competitive reasons or because minimum interest rate guarantees exist in certain contracts. For example, certain fixed annuities that we offer provide that, at our discretion, we may reset the interest rate credited to customers’ accounts, subject to a guaranteed minimum. During periods of sustained lower interest rates, our reserves for policy liabilities may not be sufficient to meet future policy obligations and may need to be strengthened. Accordingly, declining and sustained lower interest rates could materially and adversely affect our ability to take dividends from operating insurance companies and significantly reduce our profitability.

On the other hand, in periods of rapidly increasing interest rates, we may not be able to replace, in a timely manner, the assets in our investment portfolio with higher yielding investments needed to fund the higher crediting rates necessary to keep interest rate sensitive products competitive. We, therefore, may have to accept a lower spread and lower profitability or face a decline in sales and disintermediation risk if crediting rates we offer are not viewed as competitive in the higher interest rate environment. In addition, policy loans, surrenders and withdrawals tend to increase as customers seek investments with higher perceived returns as interest rates rise. This process could result in cash outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by the increase in interest rates, which could result in realized investment losses. Unanticipated withdrawals, terminations and substantial policy amendments could cause us to accelerate the amortization of DAC and VOBA, which reduces net income, and could negatively affect rating agencies’ assessment of our financial condition. An increase in interest rates could also have a material adverse effect on the value of our investment portfolio, for example, by decreasing the estimated fair values of the fixed

 

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income securities and mortgage loans that comprise a significant portion of our investment portfolio. In addition, in a period of rising interest rates, the guaranteed minimum interest rate on certain fixed annuities that we offer will increase, leading to spread compression. Finally, an increase in interest rates could result in decreased fee revenue associated with a decline in the value of variable annuity account balances invested in fixed income funds.

Our exposure to credit spreads is due to exposure to the underlying market price of our fixed income securities. If credit spreads widen significantly, we could be exposed to higher levels of other-than-temporary impairments. If credit spreads tighten significantly, it could result in reduced net investment income associated with new purchases of fixed maturity securities.

Credit spreads also affect our variable annuity business. Widening credit spreads would reduce the value of bonds held within investment options, decreasing the average account value of our annuity contracts and negatively impacting the fee income we earn. Tightening credit spreads would reduce the discount rates used in the principles-based statutory reserve calculation, potentially increasing statutory reserve requirements and, in turn, reducing statutory capital. Although these effects on bond fund valuation and reserve discount rates run in offsetting directions for either credit spread widening or narrowing, it is possible for one of them to outweigh the other under certain market conditions. Any of these risks could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Adverse capital and credit market conditions could significantly affect our liquidity, access to capital and cost of capital.

From time to time, including most recently in connection with the COVID-19 pandemic and related responses from governmental authorities, worldwide capital and credit market conditions have experienced significant disruption or deterioration. During periods of market upheaval and economic uncertainty, capital and credit markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers. We need liquidity to pay our operating expenses (including costs relating to our hedging program), interest expenses and any dividends or distributions on our common stock and to capitalize our insurance subsidiaries. We require a significant amount of liquidity for hedging purposes, such as to satisfy variation margin requirements on our futures positions or to pay the initial cost of options we purchase. Volatile market environments increase our liquidity needs for hedging purposes, as the amount of cash we need to pay out as variation margin each day is directly related to the magnitude of equity market and interest rate movements. Additionally, as our over-the-counter bilateral hedging transactions become subject to initial margin requirements, we would need liquid assets of sufficient quality to satisfy those requirements. Without sufficient liquidity, we could be required to curtail or limit our operations and our hedging program, which would have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, our ability to complete the financing transactions in connection with the Recapitalization could be negatively impacted by adverse capital and credit market conditions.

It is possible that the level of cash and securities we maintain, when combined with expected cash inflows from investments and operations, will not be adequate to meet our anticipated short-term and long-term customer benefits and expense payment obligations. If market or other conditions have an adverse impact on our capital and liquidity beyond expectations and our current resources do not satisfy our needs, we may have to seek additional financing. The availability of additional financing will depend on a variety of factors such as market conditions, regulatory considerations, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long- or short-term financial prospects if we incur large investment losses or if the level of our business activity decreases due to a market downturn or recession. Similarly, our access to funds could be impaired if regulatory authorities or rating agencies take negative actions against us. Internal sources of liquidity could prove to be insufficient and, in such case, we would not be able to successfully obtain additional financing on favorable terms, or at all. If we are unable to access capital markets to issue new debt, refinance existing debt or sell additional equity as needed, or if we are unable to obtain such financing on acceptable terms, our business, financial condition, results of operations and cash flows could be adversely impacted.

 

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Disruptions, uncertainty or volatility in capital and credit markets could also limit our access to the capital required to operate our business. Such market conditions would limit our ability to replace maturing liabilities in a timely manner, satisfy statutory capital requirements, generate fee income and market-related revenue to meet liquidity needs and access the capital necessary to grow our business. As such, we would be forced to delay raising capital, miss payments on our debt or reduce or eliminate dividends paid on our common stock, issue shorter term securities than we prefer or bear an unattractive cost of capital which could decrease profitability and significantly reduce financial flexibility. Disruptions in markets could also limit our access to capital markets required to purchase derivatives, limiting our ability to hedge according to our hedging strategy. As a result, disruptions in the financial markets could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

The COVID-19 pandemic has adversely impacted our business, and the ultimate effect on our business, financial condition, results of operations and cash flows will depend on future developments that are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

We are closely monitoring developments related to the COVID-19 pandemic and related governmental authorities’ actions taken to prevent its spread to assess its impact on our business. The COVID-19 pandemic has caused significant economic and financial turmoil both in the United States and around the world. These conditions are likely to continue and could worsen in the foreseeable future. At this time, it is not possible to estimate the timetable for the implementation of any therapeutic treatments and vaccines for COVID-19, which may occur over a prolonged period of time, 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. The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition and cash flows will depend on future developments which are highly uncertain and cannot be predicted, including those related to the severity and persistence of the COVID-19 pandemic. Federal and state authorities’ actions could include a continued reliance on restrictions of movements for a prolonged period of time. We are not able to predict the duration 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.

We cannot make any prediction of specific scenarios with respect to the COVID-19 pandemic, and risk management and contingency plans we have implemented may not adequately protect our business from such events. Currently, most of our employees are working remotely with only operationally critical employees physically working at our facilities, to the extent lawfully permitted. An extended period of remote work arrangements could introduce operational risk, including cybersecurity risks, and impair our ability to manage our business, which could adversely impact our business continuity plans. For example, our ability to access financial advisors and our sales have been adversely impacted by remote work arrangements. Our business operations could also be significantly disrupted if our critical workforce, key vendors, third-party suppliers or counterparties with whom we transact are unable to work effectively, including because of illness, quarantines, government actions in response to the COVID-19 pandemic, disruptions in access to remote working capabilities, including as a result of internet service outages, social distancing measures, civil protests or unrest, or other reasons. We also outsource certain critical business activities to third parties. Our business may also be impacted by an increase in geopolitical tensions arising from accessibility to COVID-19 vaccines, with many governments either commencing or planning the roll-out of vaccination programs to address the COVID-19 pandemic. As a result, we rely upon the successful implementation and execution of the business continuity planning of such entities in the current environment. Successful implementation and execution of business continuity strategies by these third parties are largely outside our control. If one or more of the third parties to whom we outsource certain critical business activities, including our information security, IT operations and accounting systems, experience operational failures as a result of the impacts from the spread of COVID-19, or claim that they cannot perform due to a force majeure, it could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Increased economic uncertainty and increased unemployment resulting from the economic impacts of the spread of COVID-19 and related governmental authorities’ actions taken to prevent its spread could also result in customers seeking sources of liquidity and withdrawing at rates greater than we previously expected. In addition, many state insurance departments, including NYSDFS, are requiring insurers to offer flexible premium payment plans, relax payment dates and waive late fees and penalties in order to avoid canceling or non-renewing policies. The cost of reinsurance to us for these policies could increase, and we could encounter decreased availability of

 

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such reinsurance. If customer lapse and surrender rates significantly exceed our expectations, it could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, if customers stop lapsing all together, the cost of providing guaranteed living benefits could materially increase and could have a material adverse effect on our business, financial condition, results of operations and cash flows. Such events or conditions could also have an adverse effect on our sales of annuities. In addition, such events or conditions could result in a decrease or halt in economic activity in large geographic areas, adversely affecting our business within those geographic areas or the general economic climate.

Our investment portfolio (and, specifically, the valuations of investment assets we hold) has been, and could continue to be, adversely affected as a result of market developments from the COVID-19 pandemic and uncertainty regarding its outcome. Moreover, changes in interest rates, reduced liquidity or a continued slowdown in the United States or in global economic conditions could also adversely affect the values and cash flows of these assets. Our investments in mortgages and mortgage-backed securities could be negatively affected by delays or failures of borrowers to make payments of principal and interest when due, including government-permitted deferrals or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities.

Risks Relating to Our Operations

As a holding company, JFI depends on the ability of its subsidiaries to meet its obligations and liquidity needs, including dividends and stock repurchases.

JFI is the holding company for all of our operations and is a legal entity separate from its subsidiaries. Dividends and other distributions from JFI’s subsidiaries are the principal sources of cash flow available to JFI to pay principal and interest on its outstanding indebtedness, to pay corporate operating expenses, to pay any stockholder dividends, to repurchase stock and to meet its other obligations. The inability to receive dividends or other distributions from our subsidiaries could have a material adverse effect on our business, financial condition, results of operations and cash flows, and restrict our ability to pay dividends to our stockholders or to make stock repurchases. The ability of our insurance subsidiaries to pay dividends and make other distributions to JFI will further depend on their ability to meet applicable regulatory standards and receive regulatory approvals, which are based in part on the prior year’s statutory income, capital and surplus, and unassigned funds (surplus) and require our insurance subsidiaries to hold a specific amount of minimum reserves in order to meet future obligations on their outstanding policies. Unassigned funds (surplus) represents the undistributed and unappropriated amount of statutory surplus at any balance sheet date (comparable to U.S. GAAP retained earnings). These regulations specify that the minimum reserves must be sufficient to meet future obligations, after giving consideration to future required premiums to be received, and are based on, among other things, certain specified mortality tables, interest rates and methods of valuation, which are subject to change. In order to meet their claims-paying obligations, our insurance subsidiaries regularly monitor their reserves to ensure they hold sufficient amounts to cover actual or expected contract and claims payments. At times, we may determine that reserves in excess of the minimum are needed to ensure sufficient coverage. Changes in, or reinterpretations of, these regulatory standards could constrain the ability of our subsidiaries to pay dividends or to advance or repay funds in sufficient amounts and at times necessary to meet our debt obligations and corporate expenses. Requiring our insurance subsidiaries to hold additional reserves has the potential to constrain their ability to pay dividends to JFI. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Distributions from our Insurance Company Subsidiaries.”

The subsidiaries of JFI have no obligation to pay amounts due on the debt obligations of JFI or to make funds available to JFI for such payments. For our insurance and other subsidiaries, the principal sources of liquidity are premiums and fees and income from our investment portfolio and other income generating assets. The ability of our subsidiaries to pay dividends, interest on surplus notes or other distributions to JFI in the future will depend on their earnings, tax considerations, covenants contained in any financing or other agreements and applicable regulatory restrictions. In addition, such payments could be limited as a result of claims against our subsidiaries by their creditors, including suppliers, vendors, lessors and employees.

 

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If the ability of our insurance or non-insurance subsidiaries to pay dividends or make other distributions or payments to JFI is materially restricted by regulatory requirements, other cash needs, bankruptcy, insolvency or rehabilitation, or our need to maintain the financial strength ratings of our insurance subsidiaries, or is limited due to operating results or other factors, we would be required to raise cash through the incurrence of debt, the issuance of equity, reinsurance or the sale of assets. However, there is no assurance that we would be able to raise sufficient cash by these means. This could materially and adversely affect our business, financial condition, results of operations and cash flows.

Adverse outcomes from the operational risks inherent in our business, and those of our material outsourcing partners, could disrupt our business functions and have a negative impact on our business, financial condition, results of operations and cash flows.

Operational risks are present in all of our businesses, including the risk of direct or indirect loss resulting from inadequate or failed internal and external processes, systems or human error, fraud, the effects of natural or man-made catastrophic events (such as natural disasters, pandemics, cyber-attacks, acts of terrorism, civil unrest and other catastrophes), poor governance, or from other external events. These risks could also adversely impact us through our distribution partners and our partners that provide outsourcing, policy administration, external technology, data hosting and other services. Exposure to such events could impact our operational resilience and ability to perform necessary business functions by disrupting our systems, operations, new business sales and renewals, distribution channels and services to customers, or result in the loss of confidential or proprietary data. Such events, as well as any weaknesses in administration systems (such as those relating to customer records) or actuarial reserving and hedging processes, could also result in increased expenses, as well as legal and regulatory sanctions, decreased profitability, financial loss, adverse changes in policyholder behavior and damage to our reputation and relationship with our customers and business partners.

Our business depends on processing a large number of transactions for numerous and diverse products. The large number of transactions we process makes it highly likely that errors will occasionally occur. We also employ a large number of complex and interconnected information technology and finance systems and models, and user developed applications in our processes. The long-term nature of much of our business also means that accurate records have to be maintained securely for significant time periods. Further, we operate in an extensive and evolving legal and regulatory environment (including in relation to tax) which adds to the complexity of the governance and operation of our business processes and controls. The performance of our core business activities and the uninterrupted availability of services to customers rely significantly on, and require significant investment in, information technology infrastructure and security, system development, data governance and management, compliance and other operational systems, personnel, controls and processes. Our policies and procedures may not be fully effective in identifying, monitoring or mitigating our risk exposure in all market environments or against all types of risk. Many of our methods for managing these risks and exposures are based upon historical statistical models and observed market behavior. Other risk management methods depend on the evaluation of information regarding markets, clients, or other matters publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated. As such, we may not be able to predict all future exposures, which could be significantly greater than what historical measures have indicated. This could cause our risk management strategies to be ineffective. During times of significant change, the resilience and operational effectiveness of these systems and processes could be adversely impacted. In particular, we are making increasing use of emerging technological tools and digital services and forming strategic partnerships with third parties to provide these capabilities. A failure to implement appropriate governance and management of the incremental operational risks from emerging technologies could adversely impact our business, financial condition, results of operations and cash flows.

In addition, we rely on the performance and operations of a number of third-party distribution, policy administration, outsourcing (including external technology and data hosting), and service partners. These include back office support functions, such as those relating to information technology infrastructure, development and support, and customer facing operations and services, such as product distribution and services (including through digital channels) and investment operations. This creates reliance upon the resilient operational performance of these partners, and requires the implementation and oversight of policies and procedures to ensure that we are not unduly subjected to reputational, financial or other risks attributable to such third parties.

 

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Failure to adequately oversee our third-party partners, or the failure of a partner (or of its information technology and operational systems and processes) could result in significant disruption to business operations and customers and could have adverse reputational, regulatory and legal implications, and thus could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Poor governance may arise where key governance committees have a lack of diversity, skills or experience in their members or unclear (or insufficient) oversight responsibilities and mandates. A failure to maintain high standards of corporate governance may adversely impact our business, customers and employees, through poor decision-making or oversight of key risks.

Furthermore, a failure to manage the risks associated with environmental, social and governance matters may adversely impact our reputation and brand, ability to attract and retain customers and staff, to deliver on our long-term strategy and our results of our operations and long-term financial success. See “Business—Environmental, Social and Governance.”

Our information technology systems could fail or their security could be compromised, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Our business depends on the effective operation of our information technology systems. We also have arrangements in place with outside vendors and other service providers through which we share and receive information. We rely on these systems throughout our business for a variety of functions, including processing claims and applications, providing information to customers and distributors, performing actuarial analyses and maintaining financial records. Our information technology systems, and those of our outside vendors and service providers, are vulnerable to physical or electronic intrusions, computer viruses or other attacks, programming errors and disruption from similar events. The failure of these systems for any reason could cause significant interruptions to our operations, make it difficult to recover critical services, damage assets and compromise the integrity and security of data.

We are exposed to the increasing risk of third parties attempting to disrupt the availability, confidentiality and integrity of our information technology systems, which could result in disruption to key operations, making it difficult to recover critical services, damage assets and compromise the integrity and security of data. This could result in loss of trust from our customers, reputational damage and direct or indirect financial loss. The cybersecurity threat continues to evolve globally in sophistication, frequency of attacks and potential significance. Our market profile and growing customer interest in interacting with their financial services providers through the internet and social media could also increase the likelihood of us being a target by cyber criminals. We have been, and likely will continue to be, subject to potential damage from computer viruses, attempts at unauthorized access and cybersecurity attacks such as “denial of service” attacks, phishing, untargeted but sophisticated and automated attacks, and other disruptive software campaigns. Our security measures, including information security policies, administrative, technical and physical controls, employee training and other preventative actions may not fully protect us from such events.

A material failure or breach of our information technology systems, or those of our outside vendors and other service providers, could result in a material adverse effect on our business, financial condition, results of operations and cash flows as well as loss of trust from our customers and employees, reputational damage and potential legal and regulatory liability.

Failure to protect the confidentiality of customer information or proprietary business information could adversely affect our reputation and cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Our businesses and relationships with customers depend on our ability to maintain the confidentiality of our customers’ proprietary business and confidential information (including customer transactional data and personal information about our distribution partners, customers and our own employees). There is an increasing requirement and expectation that we will hold customer and employee data securely, maintain its ongoing accuracy and use such data in a transparent and appropriate way. The risks of failing to secure data and misusing data are increased by the use of emerging technological tools that increase the volume of data that we collect and process.

 

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Pursuant to federal laws, various federal regulatory and law enforcement agencies have established rules protecting the privacy and security of personal information. In addition, most states have enacted laws, which vary significantly from jurisdiction to jurisdiction, to safeguard the privacy and security of personal information. The NYSDFS has adopted 23 NYCRR 500 (the “NYSDFS Cybersecurity Regulation”) which requires covered businesses in New York to develop a comprehensive cybersecurity program that aligns to the NIST Cybersecurity Framework and requires adequate risk assessments, enhanced third-party vendor management, development of an incident response plan and data breach notifications within 72 hours. Any compromise of the cybersecurity of our information technology systems or of the third-party vendors’ systems that results in the unauthorized access or disclosure of nonpublic personally identifiable personal or business information could damage our reputation in the marketplace, deter investors from purchasing our products, subject us to civil liability and require us to incur significant technical, legal and other expenses. The NYSDFS recently filed its first enforcement action under this law demonstrating the significant risk businesses could face for noncompliance. The California Consumer Privacy Act of 2018 (the “CCPA”) grants all California residents the right to know what information a business has collected from them and the sourcing and sharing of that information, as well as a right to have a business delete their personal information (with some exceptions). The CCPA’s definition of “personal information” is more expansive than those found in other privacy laws applicable to us in the United States. Failure to comply with the CCPA could result in regulatory fines, and the law grants a private right of action for any unauthorized disclosure of personal information as a result of failure to maintain reasonable security procedures. The National Association of Insurance Commissioners (the “NAIC”) has adopted the Insurance Data Security Model Law which established the standards for data security, investigation, and notification of a breach of data security for insurance companies. An increasing number of state insurance regulatory agencies have adopted a version of the NAIC’s model regulation and now require that affected persons be notified if a security breach results in the disclosure of their personally identifiable information. We also expect that developments in data protection worldwide (such as the implementation of EU General Data Protection Regulation) will increase the financial and reputational implications following a significant breach of our (or our third-party suppliers’) information technology systems. New and currently unforeseeable regulatory issues could also arise from the increased use of emerging technology, data and digital services.

We retain confidential information in our information systems and in cloud-based systems (including customer transactional data and personal information about our distribution partners, customers, and our own employees). We rely on commercial technologies and third parties to maintain the security of those systems. Anyone who is able to circumvent our security measures and penetrate our information systems, or the cloud-based systems we use, could access, view, misappropriate, alter or delete any information in the systems, including personally identifiable customer information and proprietary business information. It is possible that an employee, contractor or representative could, intentionally or unintentionally, disclose or misappropriate personal information or other confidential information. Our employees, distribution partners and other vendors use portable computers or mobile devices which could contain similar information to that in our information systems, and these devices have been and could be lost, stolen or damaged. An increasing number of states require that customers be notified if a security breach results in the inappropriate disclosure of personally identifiable customer information. Any compromise of the cybersecurity of our information technology systems that results in the unauthorized disclosure of personally identifiable customer information could damage our reputation in the marketplace, deter people from purchasing our products, subject us to civil and criminal liability and require us to incur significant technical, legal and other expenses, any of which could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Our inability to recruit, motivate and retain key employees and experienced and productive employees could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Our business depends on our ability to attract, motivate and retain highly skilled, and often highly specialized, technical, investment, actuarial, managerial and executive personnel. For example, we rely upon the knowledge and experience of employees with technical expertise to provide sound operational controls for our overall enterprise, including the accurate and timely preparation of required regulatory filings and U.S. GAAP and statutory financial statements and operation of internal controls. Our success also depends on the continued service of our key senior management team, including executive officers and senior managers. We may not retain these key employees or identify or attract suitable replacements for various reasons, including if we do not

 

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maintain responsible, diverse and inclusive working practices. Our succession plans may not operate effectively, and our compensation plans may not be effective in helping us retain our key employees, the loss of one or more of whom could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Intense competition exists among insurers and other financial services companies for highly skilled and experienced employees. Further, heightened competition for talented and skilled employees in localities in which we operate could limit our ability to grow our business in those localities as quickly as planned. Technological advances could result in increased competition (including from outside the insurance industry) and a failure to be able to attract sufficient numbers of skilled staff.

Misconduct by our employees or business partners could expose us to significant legal liability and reputational harm.

Past or future misconduct by our employees, agents, and intermediaries, representatives of our broker-dealer subsidiaries or employees of our distribution partners could result in violations of law by us or our subsidiaries, regulatory sanctions and serious reputational or financial harm, and the precautions we take to prevent and detect this activity may not be effective. This could include a failure to consider the rights, diversity and interests of the people and communities in which we or our business partners operate. We employ controls and procedures designed to monitor employees’ business decisions and to prevent us from taking excessive or inappropriate risks, including with respect to information security, but employees may take such risks regardless of such controls and procedures. It is possible that our compensation policies and practices could inadvertently incentivize or fail to dis-incentivize excessive or inappropriate risk taking. If our employees take excessive or inappropriate risks, those risks could harm our reputation, subject us to significant civil or criminal liability and require us to incur significant technical, legal and other expenses. In addition, because our products are distributed through third-party firms, we may not be able to monitor or control the manner of their distribution despite our training and compliance programs. If our products are distributed by such firms in an inappropriate manner, or to customers for whom they are unsuitable, we could suffer reputational and other harm to our business. Actions taken by our employees outside of the scope of their employment and unrelated to our business could cause reputational harm to us.

We could experience difficulty in marketing and distributing products.

We distribute our products through a variety of third-party distribution partners. Our agreements with third-party distributors are subject to termination by either party with or without cause. We periodically renegotiate the terms of these agreements, and such terms may not remain attractive or acceptable to us or such third parties. Our distributors could elect to suspend, alter, reduce or terminate their distribution relationships with us for various reasons, including changes in our distribution strategy, decisions to discontinue a product, failure to create new products, adverse developments in our business, products with features that do not meet minimum thresholds set by the distributor, developments in laws or regulations that affect our business or industry, adverse rating agency actions, or concerns about market-related risks. If certain key distributors were to terminate their relationship with us or reduce the amount of sales which they produce for us our business, financial condition, results of operations and cash flows could be adversely affected. For the year ended December 31, 2020, our top 30 distribution partners represented approximately 71% of our sales, and our largest distribution partner represented approximately 10% of our sales. We are also at risk that key distribution partners could merge, consolidate, change their business models in ways that affect how our products are sold, or terminate their distribution contracts with us, or that new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts. An increase in bank, wirehouse and broker-dealer consolidation activity could increase competition for access to distributors, result in greater distribution expenses and impair our ability to market products through these channels.

Consolidation of distributors or other industry changes could also increase the likelihood that distributors will try to renegotiate the terms of any existing selling agreements to terms less favorable to us. Also, if we are unsuccessful in attracting and retaining key distribution associates, including wholesalers, our sales could decline. If we are unable to maintain our relationships our sales of annuities could decline, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, our distributors could also sell our competitors’ products. If our competitors offer products that are more attractive than ours or pay higher commission rates to the distribution partners than we do, these distribution partners could concentrate their efforts in selling our competitors’ products instead of ours.

 

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We face risks arising from acquisitions or other strategic transactions.

We have made acquisitions in the past and may pursue further acquisitions or other strategic transactions, including reinsurance, dispositions and joint ventures, in the future. We face a number of risks arising from acquisition transactions, including difficulties in assimilating and retaining employees and intermediaries, difficulties in retaining the existing customers of the acquired entities, unforeseen liabilities that arise in connection with the acquired businesses, unfavorable market conditions that could negatively impact our expectations for the acquired businesses, as well as difficulties in integrating and realizing the projected results of acquisitions and managing the litigation and regulatory matters to which acquired entities are party. Furthermore, strategic transactions could require us to increase our leverage or, if we issue shares to fund an acquisition, would dilute the holdings of the existing stockholders. These risks could prevent us from realizing the expected benefits from acquisitions and could result in the impairment of goodwill and other intangible assets recognized at the time of acquisition. In addition, our strategy of complementing our organic growth by exploring opportunities for acquisitions could be materially and adversely affected by the increasingly competitive nature of the life insurance and annuity merger and acquisition market and the increased participation of non-traditional buyers in the life insurance and annuity merger and acquisition market.

We are exposed to risks related to natural and man-made disasters and catastrophes, diseases, epidemics, pandemics, malicious acts, terrorist acts, civil unrest and climate change.

We are exposed to the risk of catastrophic mortality, such as from a pandemic, civil unrest, an act of terrorism, a natural disaster or other event that causes a large number of deaths or injuries. Pandemics, significant influenza, and other epidemics and outbreaks of disease such as the recent COVID-19 pandemic have occurred a number of times historically, but the likelihood, timing and severity of future events cannot be predicted. Additionally, the impact of climate change could cause changes in weather patterns, resulting in more severe and more frequent natural disasters such as forest fires, hurricanes, tornados, floods and storm surges, and changes in the frequency of outbreaks of certain diseases.

In the event of a disaster, unanticipated problems with our business continuity plans could cause a material adverse effect on our business, financial condition, results of operations and cash flows, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems or destroy valuable data. Our ability to conduct business could be adversely affected by a disruption in the infrastructure that supports our operations and the communities in which they are located. This could include a disruption involving electrical, communications, transportation or other services we use or that third parties with whom we conduct business use. If a disruption occurs in one location and our employees in that location are unable to occupy our offices or communicate with or travel to other locations, our ability to conduct business with and on behalf of our customers could suffer, and we may not be able to successfully implement contingency plans that depend on communication or travel. Our operations require experienced, professional staff, and loss of a substantial number of such persons or an inability to provide properly equipped places for them to work, by disrupting our operations, could adversely affect our business, financial condition, results of operations and cash flows.

In addition, if a disaster or disruption causes capital markets or derivatives markets to remain closed for a prolonged period of time, we could be unable to access liquidity or execute required rebalancing of our derivatives positions. These events could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Lastly, catastrophic events could harm the financial condition of our reinsurers and thereby increase the probability of default on reinsurance recoveries. As a result, our ability to write new business could also be affected. These events could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

The insurance that we maintain may not fully cover all potential exposures.

We maintain property, business interruption, casualty, cybersecurity and other types of insurance, but such insurance may not cover all risks associated with the operation of our business. Our coverage is subject to exclusions and limitations, including higher self-insured retentions or deductibles and maximum limits and

 

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liabilities covered. In addition, from time to time, various types of insurance may not be available on commercially acceptable terms or, in some cases, at all. We are potentially at additional risk if one or more of our insurance carriers fail. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the ratings and survival of some insurers. Future downgrades in the ratings of enough insurers could adversely impact both the availability of appropriate insurance coverage and its cost. In the future, we may not be able to obtain coverage at current levels, if at all, and our premiums could increase significantly on coverage that we maintain. Certain claims may not be covered by our insurance policies or, if covered, could exceed the limits of available insurance coverage. In addition, our insurers may not remain solvent or may not fulfill their obligations. Currently, we are party to certain joint insurance arrangements with Prudential, accordingly, following the completion of the Demerger, we will need to obtain separate insurance coverage, which we expect will be at a higher price for similar coverage, which would increase our costs and could adversely affect our business, financial condition, results of operations and cash flows.

Changes in accounting standards could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Our consolidated financial statements are prepared in accordance with U.S. GAAP, the principles of which are revised from time to time. Accordingly, from time to time, we will be required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board (“FASB”). FASB has issued several accounting standards updates which have resulted in significant changes in U.S. GAAP, including how we account for our financial instruments and how our financial statements are presented. Changes to U.S. GAAP could affect the way we account for and report significant areas of our business, impose special demands on us in the areas of governance, employee training, internal controls and disclosure and affect how we manage our business. In August 2018, the FASB issued ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, which applies to all insurance entities that issue long-duration contracts and revises elements of the measurement models for traditional nonparticipating long-duration and limited payment insurance liabilities and recognition and modifies the amortization model for DAC for most long duration contracts. The new accounting standard also requires product features that have other-than-nominal credit risk, or market risk benefits, to be measured at fair value. In November 2019, ASU 2019-09 was issued which modified ASU 2018-12 to be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. We are currently evaluating the impact that the adoption of this guidance will have on our consolidated financial statements. At current market interest rate levels, ASU 2018-12 and ASU 2019-09 could ultimately result in a material decrease in our stockholders’ equity, which could cause a material adverse effect on our leverage ratios and other rating agency metrics and could consequently adversely impact our financial strength ratings and our ability to incur new indebtedness or refinance our existing indebtedness. In addition, ASU 2018-12 and ASU 2019-09 could also result in increased market sensitivity of our financial statements and results of operations.

Our operating insurance companies are also subject to statutory accounting practices prescribed or permitted by their states of domicile. Any changes in the method of calculating reserves for our products under SAP could result in increased reserve requirements. The NAIC adopted an updated framework for the statutory accounting and capital requirements for variable annuities in the summer of 2018 titled Valuation Manual Minimum Standards No. VM-21: Requirements for Principle-Based Reserves for Variable Annuities (“VM-21”). The NAIC guidance had an effective date of January 2020 for the new framework, with early adoption permitted. We early adopted the new framework for Jackson National Life in the period ending December 31, 2019. Jackson National Life NY adopted the variation of the new framework applicable to New York-domiciled companies (promulgated through NY Regulation 213 in early 2020) in 2020. The new framework has resulted in substantial changes in reserves, statutory surplus and capital requirements as reported in the statutory basis financial statements for those periods. During 2020, we determined that a simplifying modeling assumption was not consistent with our intent in the early adoption of VM-21. The adjustment resulting from this correction and related modeling changes reduced Jackson National Life’s RBC ratio by 80 percentage points. We determined this adjustment to be a correction of an error that was not material to the current year or the 2019 statutory annual financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Statutory Capital.” Further changes to this guidance (such

 

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as those resulting from the work currently underway by the Life Actuarial (A) Task Force to find a suitable replacement for the Economic Scenario Generators developed by the American Academy of Actuaries (“Academy”)) or movements in economic inputs, such as interest rates, under this framework could impact the volatility of our statutory surplus and required capital. The Economic Scenario Generators developed by the Academy are prescribed by the NAIC for use by the life insurance industry in calculations of life and annuity statutory reserves and statutory capital. Beginning in early 2017, the Academy notified the NAIC’s Life Actuarial (A) Task Force that it did not have the resources to maintain the Economic Scenario Generators, except in their current form, and that a suitable replacement should be found. As a result, in October 2020, the NAIC selected Conning, Inc. (“Conning”), a global software and professional services firm, to provide an Economic Scenario Generators software platform for use in calculations of life and annuity reserves and capital under the NAIC risk-based capital requirements. Conning is expected to provide the NAIC with updated real-world scenarios modeling interest rates, equities and other economic factors, and provide full documentation and training materials for regulators and insurers. Based on currently available information, the potential impact of any revisions to the Economic Scenario Generators is unclear at present. In the event that these potential Economic Scenario Generators changes are significant, there could be a material impact on the level and volatility of our statutory surplus and required statutory capital.

We expect to incur indebtedness in connection with the Recapitalization, which will increase our costs, and the degree to which we will be leveraged could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

As of December 31, 2020, on a pro forma basis giving effect to the Recapitalization, we would have had $2.7 billion of indebtedness, representing a total financial leverage ratio of approximately 28%. We have historically relied upon Prudential for financing and for other financial support functions. After the completion of the Demerger, we will not be able to rely on Prudential’s earnings, assets or cash flows, and we will be responsible for servicing our own indebtedness, obtaining and maintaining sufficient working capital and paying any dividends to our stockholders. In addition, despite our indebtedness levels, we may be able to incur substantially more indebtedness under the terms of our debt agreements. Any such incurrence of additional indebtedness would increase the risks created by our level of indebtedness.

Our ability to make payments on and to refinance our indebtedness, including the debt outstanding or incurred prior to the completion of the Demerger as well as any future indebtedness that we may incur, will depend on our ability to generate cash in the future from operations, financing or asset sales. Our ability to generate cash to meet our debt obligations in the future is sensitive to capital market returns and interest rates, primarily due to our variable annuity business.

On February 22, 2021, we and a syndicate of banks entered into a credit agreement consisting of a $1.0 billion 3-year senior unsecured revolving credit facility (the “Revolving Facility”), and a credit agreement consisting of a $1.7 billion 364-day senior unsecured delayed draw term loan facility (the “364-Day DDTL Term Facility”) and a $1.0 billion 2-year senior unsecured delayed draw term loan facility (the “2-Year DDTL Term Facility” and together with the 364-Day DDTL Term Facility, the “DDTL Term Facilities”; and the DDTL Term Facilities, together with the Revolving Facility, the “Facilities”). On and after the date of completion of the Demerger, the Revolving Facility provides for borrowings to be available for working capital and other general corporate purposes with aggregate commitments of $1.0 billion, with a sublimit of $500 million available for letters of credit. The Revolving Facility further provides for the ability to request, subject to customary terms and conditions, an increase in commitments thereunder by an additional $500 million. On or prior to the date that is the six-month anniversary of our entry into the credit agreements, the DDTL Term Facilities provide for a single drawing under each for general corporate purposes and provides aggregate commitments for borrowings of up to $1.7 billion under the 364-Day DDTL Term Facility and $1.0 billion under the 2-Year DDTL Term Facility. We expect to draw approximately $750 million under the 2-Year DDTL Term Facility prior to the completion of the Demerger. See “Recapitalization.”

The credit agreements for the Facilities contain a number of customary representations and warranties, affirmative and negative covenants and events of default (including a change of control provision). Such

 

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covenants, among other things, restrict, subject to certain exceptions, our ability to incur additional indebtedness, create liens on our or our subsidiaries’ assets, make fundamental changes and, unless 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, pay dividends and distributions or repurchase common shares. The credit agreements for the Facilities contain financial maintenance covenants, including a minimum adjusted consolidated net worth test of no less than 70% of our adjusted consolidated net worth as of the date of the Demerger (taking into account 50% of the proceeds of any additional equity issuances) 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.

Overall, our ability to generate cash is subject to general economic, financial market, competitive, legislative, regulatory, client behavior and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we could be forced to take unfavorable actions, including significant business and legal entity restructuring, limited new business investment, selling assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired. In the event we default, the lenders who hold our debt could also accelerate amounts due, which could potentially trigger a default or acceleration of the maturity of our other debt.

In addition, the level of our indebtedness could put us at a competitive disadvantage compared to our competitors that are less leveraged than us. These competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. The level of our indebtedness could also impede our ability to withstand downturns in our industry or the economy in general.

Our failure to comply with negative covenants contained in our current or future credit facilities or agreements could trigger prepayment obligations, which could materially adversely affect our business, results of operations and financial condition.

Our Revolving Facility and DDTL Term Facilities require us to comply with certain covenants, including requirements that we maintain an adjusted consolidated net worth determined in accordance with U.S. GAAP of no less than 70% of our net worth as of the last day of the fiscal quarter ended immediately prior to the date of the Demerger, and that our ratio of consolidated total indebtedness to consolidated total capitalization does not exceed 0.35 to 1.00. Our failure to comply with these covenants could result in an event of default which, if not cured or waived within any applicable grace period, could result in the acceleration of amounts outstanding under the Revolving Facility and of the DDTL Term Facilities. In addition, if we default on any other outstanding indebtedness with a principal amount of not less than $150 million, or any swap contract, we will also be in default under the Revolving Facility and on the DDTL Term Facilities. Any such default, and any resulting acceleration of our outstanding indebtedness, would have a material adverse effect on our business, financial condition, results of operations and cash flows.

Changes in the method for determining the London Interbank Offered Rate (“LIBOR”) and the upcoming phasing out of LIBOR and uncertainty related to LIBOR replacement rates could affect our cost of capital and net investment income.

In July 2017, the United Kingdom’s Financial Conduct Authority, the governing body responsible for regulating LIBOR, announced that it will no longer compel or persuade financial institutions and panel banks to submit rates for the calculation of LIBOR after 2021. This decision is expected to result in the discontinuance of the use of LIBOR as a reference rate for derivatives contracts, commercial loans and other indebtedness. The Alternate Reference Rate Committee, convened by the Board of Governors of the Federal Reserve System and the New York Federal Reserve Bank, has endorsed the Secured Overnight Financing Rate (“SOFR”) as its preferred replacement benchmark for U.S. dollar LIBOR. SOFR is calculated and published by the New York Federal Reserve Bank and reflects the combination of three overnight U.S. Treasury Repo Rates. On

 

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November 30, 2020, the administrator of LIBOR announced that only the one week and two-month U.S. dollar LIBOR settings would cease publication on December 31, 2020, while the remaining tenors will continue to be published through June 30, 2023. Regulators in the U.S. and globally have continued to push for market participants to transition away from the use of LIBOR and have urged market participants to not enter into new contracts that reference U.S. dollar LIBOR after December 31, 2021.

We anticipate a valuation risk around the potential discontinuation event as well as potential risks relating to the hedging of interest-rate risk. The International Swaps and Derivatives Association (“ISDA”) has developed adjustment mechanics for use by swap counterparties entering into SOFR-based derivatives to allow for use of a rate that is compounded in arrears and a spread adjustment to better align with LIBOR. The aim of these mechanics is to provide counterparties with an adjusted rate more akin to LIBOR. To the extent that the adjustments recommended by ISDA are adopted by swap dealers and are different from the rates or adjustment mechanics used in fixed maturity securities and other debt securities we invest in or issue, we may not be able to appropriately hedge our exposure and we could experience losses.

Additionally, the elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could adversely affect the amount of interest payable or interest receivable on certain of our investments. These changes could also impact the market liquidity and market value of these investments.

Our Revolving Credit Facilities and DDTL Term Facilities provide that interest may be based on LIBOR and provide for the use of an alternate rate to LIBOR in the event LIBOR is phased-out; however, uncertainty remains as to any such replacement rate and any such replacement rate may be higher or lower than LIBOR may have been.

It is currently not possible to predict what rate or rates will become accepted alternatives to LIBOR or the effect of any such alternatives on the value of LIBOR-linked securities. Any changes to LIBOR or any alternative rate, or any further uncertainty in relation to the timing and manner of implementation of such changes, could have an adverse effect on the value of investments in our investment portfolio, derivatives we use for hedging, or other indebtedness, securities or commercial contracts.

Our investment management business’ revenues and results of operations depend on the market value and composition of our assets under management, which could fluctuate significantly based on various factors, including many factors outside of our control.

We derive most of our revenues related to our investment management business from investment advisory, services and distribution fees, which typically are calculated as a percentage of the value of assets under management as of a specified date, or as a percentage of the value of average assets under management for the applicable billing period. As of December 31, 2020, our Investment Advisory Subsidiaries, JNAM and PPM, had approximately $362 billion of assets under management in the aggregate, approximately $256 billion of which was managed by JNAM and approximately $106 billion of which was managed by PPM. Since December 31, 2020, PPM’s assets under management have decreased primarily due to withdrawals by Prudential’s former UK affiliate, which will have a negative impact on PPM’s net revenues for the year ended December 31, 2021. PPM’s assets under management at the time of the Demerger are anticipated to be approximately $80 billion. The fees charged for these services vary with the type of investment or distribution service, the size of the account and the total amount of assets managed for a particular client. The value and composition of our investment management business’ assets under management could be adversely affected by several factors, including:

 

   

Market Factors. Global financial markets experienced extreme volatility in the first and second quarters of 2020. Market volatility could adversely affect our assets under management and revenues.

 

   

Client Preferences. Certain of our Investment Advisory Subsidiaries’ clients may withdraw their assets at any time and on short notice. Also, changing market dynamics and investment trends, particularly with respect to the ongoing shift to lower-fee passive services described below, could continue to reduce interest in some of the investment products our Investment Advisory Subsidiaries offer, or

 

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clients and prospects may continue to seek investment products that our Investment Advisory Subsidiaries do not currently offer. Loss of, or decreases in, assets under management reduces our advisory and services fees and revenues.

 

   

Our Investment Advisory Subsidiaries’ Investment Performance. Our Investment Advisory Subsidiaries’ ability to achieve investment returns for clients that meet or exceed investment returns for comparable asset classes and competing investment services is a key consideration when clients decide to keep their assets with our Investment Advisory Subsidiaries or invest additional assets, and when a prospective client is deciding whether to invest with our Investment Advisory Subsidiaries. Poor investment performance, both in absolute terms or relative to peers and stated benchmarks, could result in clients withdrawing assets and in prospective clients choosing to invest with competitors.

 

   

Service and Fee Changes. Our Investment Advisory Subsidiaries may be required to reduce fee levels, restructure the fees they charge or adjust the services they offer to their clients because of, among other things, regulatory initiatives (whether industry-wide or specifically targeted), changing technology in the asset management business (including algorithmic strategies and emerging financial technology), court decisions and competitive considerations. A reduction in fees would reduce our revenues.

A decrease in the value of our assets under management, an adverse shift in the mix of our assets under management or a reduction in the level of fees our Investment Advisory Affiliates can charge would adversely affect our investment management business’ investment advisory, services and distribution fees and revenues. A reduction in revenues could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our historical consolidated financial data are not necessarily representative of the results we would have achieved as a separate company and are not be a reliable indicator of our future results.

Our historical consolidated financial data included in this information statement do not necessarily reflect the financial condition, results of operations or cash flows we would have achieved as a separate company during the periods presented or those we will achieve in the future. For example, we anticipate adjusting our capital structure to more closely align with peer U.S. public companies. As a result, financial metrics that are influenced by our capital structure are not necessarily indicative for historical periods of the performance we may achieve as a separate company following the completion of the Demerger. Significant increases may occur in our cost structure as a result of the Demerger, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act of 2002. In addition, as a result of the Athene Reinsurance Transaction, we expect the amount of income generated by our in-force fixed annuities and fixed index annuities business to decline significantly. See “Unaudited Pro Forma Condensed Financial Information.” As a result of these matters, among others, it may be difficult for investors to compare our future results to historical results or to evaluate our relative performance or trends in our business.

Risks Relating to Credit, Counterparties and Investments

We are exposed to the risk of deterioration of the credit quality of, and defaults on, the securities and loans in our investment portfolio, which could have an adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to the risk that the issuers of our fixed maturity securities and other debt securities and borrowers on our commercial mortgages will default on principal and interest payments or be unable or unwilling to pay us in a timely manner, if at all, due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons. The occurrence of a major economic downturn, acts of corporate malfeasance, widening credit risk spreads or other events that adversely affect the issuers or guarantors of securities we own or the underlying collateral of structured securities we own could cause the estimated fair value of our fixed maturity securities portfolio and corresponding earnings to decline and cause the default rate of the fixed maturity securities in our investment portfolio to increase. Defaults by such issuers and borrowers in the payment or performance of their obligations could reduce our investment income and investment gains or

 

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result in investment losses. Further, the value of any particular fixed maturity security is subject to impairment based on the expectations for repayment of the cash flows agreed under the obligation. Issuers of the fixed maturity securities that we own could experience performance deterioration that trigger rating agency downgrades. Even if the issuers have not defaulted on principal and interest payments with respect to these securities, we could still be required by regulators and rating agencies to hold more capital in support of these investments. As a result, we could experience a higher cost of capital and potential constraints on our ability to grow our business and maintain our own ratings.

The mortgage loans in our investment portfolio, which are collateralized by commercial properties, are subject to default risk. As of December 31, 2020, we held mortgage loans collateralized by commercial properties of $7.7 billion. The carrying value of our commercial mortgage loans is stated at the aggregate unpaid principal balance of such loans, net of unamortized discounts and premiums, impairments and an allowance for expected credit losses. As required by accounting standards, we assess our commercial mortgage loan portfolio for current expected credit losses. In determining our estimate for losses, we evaluate loans to determine expected losses over the lifetime of the loans using a combination of macroeconomic assumptions and our own historical loss experience for similar cohorts of loans. This review contemplates a variety of factors which include, but are not limited to, current economic conditions, cross-collateralization, the physical condition of the property, the financial condition of the borrower, and the near and long-term prospects for change in these conditions, in addition to our historical experience for similar loans. Changes in the estimate for credit losses are recorded in income on a U.S. GAAP basis. For SAP, we assess the portfolio for impairments and allowances for loan losses on specific investments, which are based on loan risk characteristics, historical default rates and loss severities, real estate market fundamentals, such as property prices and unemployment, and economic outlooks, as well as other relevant factors (for example, local economic conditions). Impairment charges recognized are recorded initially against the established loan loss allowance and, if necessary, any additional amounts are recorded as realized losses. We may place loans on non-accrual status. In this case, all cash received is applied against the carrying value of the loan as we deem necessary based on cash flow expectations and other factors.

Further, any geographic or property type concentration of our mortgage loans could have adverse effects on our investment portfolio and consequently on our business, financial condition, results of operations and cash flows. Events or developments that have a negative effect on any particular geographic region or sector could have a greater adverse effect on our investment portfolio to the extent that the portfolio is concentrated. Moreover, our ability to sell certain assets could be limited if other market participants are seeking to sell similar or related assets at the same time.

Deterioration in the credit quality of the fixed maturity securities and other debt securities and commercial mortgages in our investment portfolio, or an increase in the default rate of our mortgage loan investments caused by worsening economic conditions or otherwise, could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Our use of financial derivative transactions to hedge risks associated with our operations exposes us to counterparty credit risk and could adversely affect our business, financial condition, results of operations and cash flows.

We utilize derivatives primarily as part of our variable and fixed index annuity financial risk management strategy, principally to manage the inherent equity market and interest rate risk associated with the optional guarantee benefits embedded in those products. Derivative contracts, primarily composed of futures and options on equity indices and interest rates, are an essential part of our program and are selected to provide a measure of economic protection. These transactions are designed to manage the risk of a change in the value, yield, price, cash flows or degree of exposure with respect to assets, liabilities or future cash flows which we have acquired or incurred. As of December 31, 2020 and 2019, notional amounts on our derivative instruments totaled $98.5 billion and $111.1 billion, respectively. For additional detail regarding notional amounts on our derivative instruments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments—Derivative Instruments.” We manage the potential credit exposure for derivative contracts through evaluation of the credit worthiness of counterparties, the use of ISDA and collateral

 

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agreements, and master netting agreements. While there were no charges due to nonperformance by derivative counterparties in 2020, 2019 or 2018, if our counterparties fail or refuse to honor their obligations under the derivative contracts, we may not be able to realize the full market value of the derivatives if that value exceeds the amount of collateral held at the time of failure. Any such failure or refusal could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Our transactions with financial and other institutions generally specify the circumstances under which either party is required to pledge collateral related to any change in the market value of the derivatives contracts. The amount of collateral, or variation margin, we are required to post under these agreements could increase under certain circumstances, which could adversely affect our liquidity. We invest on a short-term basis the cash collateral pledged to us by our derivative counterparties in unsecured money market and prime funds, which exposes us to the credit risk of the financial institutions where we invest funds received as collateral. Additionally, the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and other regulations could increase the need for liquidity and for the amount of collateral assets in excess of current levels, further exacerbating these risks.

In a period of market or credit stress, derivative counterparties take a more conservative view of their acceptable credit exposure to us, resulting in reduced capacity to execute derivative-based hedges when we need it most. Similarly, a downgrade in our credit ratings could cause counterparties to limit or reduce their exposure to us and thus reduce our ability to manage our market risk exposures effectively during times of market stress.

Our use of reinsurance to mitigate a portion of the risks that we face exposes us to counterparty credit risk and could adversely affect our business, financial condition, results of operations and cash flows.

We use reinsurance to mitigate a portion of the risks that we face, principally in certain of our in-force annuity and life insurance products with regard to longevity and mortality risks, in certain of our annuities with regard to the GMIB features, and the in-force fixed annuities and fixed index annuities ceded to Athene. Under our reinsurance arrangements, other insurers assume a portion of the obligation to pay claims and related expenses to which we are subject. As of December 31, 2020, we have ceded approximately $35.2 billion of U.S. GAAP liabilities to third parties for reinsurance protection. Of this amount, $27.4 billion represents the in-force fixed annuities and fixed index annuities written by our subsidiary Jackson National Life and ceded to Athene in June 2020 on a funds withheld coinsurance basis, and the remainder primarily relates to a closed block of corporate-owned life insurance ceded to Swiss Re in 2012 on a funds withheld coinsurance basis.

We remain liable as the direct insurer on all risks we reinsure and, therefore, are subject to the risk that a reinsurer is unable or unwilling to pay or reimburse claims at the time demand is made. The collectability of reinsurance is largely a function of the solvency of the individual reinsurers. We perform periodic credit reviews on our reinsurers, focusing on, among other things, credit ratings, financial capacity, regulatory capital requirements, stability, trends and commitments to the reinsurance business. We also require assets in trust, letters of credit or other acceptable collateral to support balances due from reinsurers not authorized to transact business in the applicable jurisdiction. Despite these measures, the inability or unwillingness of a reinsurer to meet its obligations to us, or the inability to collect under our reinsurance treaties for any other reason, could cause a material adverse impact on our business, financial condition, results of operations and cash flows. For example, to support its obligations under the reinsurance agreements, Athene procured $1.2 billion in letters of credit for our benefit and established a trust account for our benefit funded with assets with a book value of approximately $69.5 million at December 31, 2020. However, it is possible that such collateral could be insufficient to meet statutory reserve requirements or other financial needs in the event of any default or recapture event. In connection with the Athene Reinsurance Transaction, Apollo Insurance Solutions, an affiliate of Athene, manages all of the assets held in the related funds withheld account. Since this arrangement with Athene involves reinsurance of substantially all of our in-force fixed annuities and fixed index annuities, it covers a larger volume of business than would a traditional reinsurance agreement, thereby exposing us to a large concentration of credit risk with respect to Athene. See “Certain Relationships and Related Party Transactions.”

 

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The difficulties faced by other financial institutions could adversely affect us.

We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, with respect to credit transactions in which we acquire a security interest in collateral owned by the borrower, our credit risk could be exacerbated when the collateral cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to us. We also have exposure to financial institutions in the form of unsecured debt instruments, derivative transactions, reinsurance and underwriting arrangements, unsecured money market and prime funds and equity investments. Losses or impairments to the carrying value of these assets could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, an insolvency of, or the appointment of a receiver to rehabilitate or liquidate, a significant competitor could negatively impact our businesses if such appointment were to impact consumer confidence in our products and services.

Failures elsewhere in the insurance industry could obligate us to pay assessments through state insurance guaranty associations.

Most of the jurisdictions in which we transact business require life insurers doing business within the jurisdiction to participate in guaranty associations. These associations are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers, or those that could become impaired, insolvent or fail, for example, following the occurrence of one or more catastrophic events. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which an impaired, insolvent or failed insurer is engaged. In addition, certain states have government owned or controlled organizations providing life insurance to their residents. The activities of such organizations could also place additional stress on the adequacy of guaranty fund assessments. Many of these organizations also have the power to levy assessments similar to those of the guaranty associations described above. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. It is possible that a large catastrophic event could render such guaranty funds inadequate and we could be called upon to contribute additional amounts, which could have a material impact on our business, financial condition, results of operations and cash flows. We have established reserves for guaranty fund assessments that we consider adequate, but additional reserves may be necessary. See Note 14 to our financial statements included elsewhere in this information statement.

For purposes of guaranty association assessments, long-term care insurance is typically classified as a health insurance product. Following the March 2017 liquidation of Penn Treaty Network America Insurance Co. and American Network Insurance Co., both of which were Pennsylvania-domiciled life insurance companies that sold long-term care insurance policies, there have been proposals to expand the assessment base for long-term care insurer insolvencies by requiring life and health insurers to contribute to potential long-term care insurer insolvencies. In December 2017, the NAIC adopted amendments to the Life and Health Insurance Guaranty Association Model Act to provide a fifty-fifty split between life and health insurers for future long-term care insolvencies. Several states are now considering, or have adopted, legislation to codify the NAIC changes into law, and more states are expected to propose legislation. If these changes become law, future assessments against life insurers, including Jackson National Life and our other insurance company subsidiaries, could increase. We cannot predict whether the revisions to the model law or other proposals will be implemented or, if implemented, what impact they will have on assessments we pay or our business.

We are subject to liquidity risks associated with sourcing a large concentration of our funding from the Federal Home Loan Bank of Indianapolis (“FHLBI”).

We use institutional funding agreements originating from FHLBI, which from time to time serve as a significant source of our liquidity. As of December 31, 2020, we had issued $1.5 billion of non-putable funding agreements in exchange for eligible collateral, mostly in the form of commercial mortgage backed securities and

 

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commercial mortgage loans. Additionally, we also use short-term agreements with the FHLBI to meet near-term liquidity needs, augmenting our repurchase agreement capacity from other counterparties. If the FHLBI were to change its definition of eligible collateral, we could be required to post additional amounts of collateral in the form of cash or other assets. Additionally, we could be required to find other sources to replace this funding if we lose access to FHLBI. This could occur if our creditworthiness falls below the FHLBI’s requirements or if legislative or other political actions cause changes to the FHLBI’s mandate or to the eligibility of life insurance companies to be members of the FHLBI system.

Some of our investments are relatively illiquid and could be difficult to sell, or to sell in significant amounts at acceptable prices, to generate cash to meet our needs.

We hold certain investments that are relatively illiquid, such as privately placed fixed maturity securities, mortgage loans, certain asset backed securities and alternative investments. Collectively, investments in these assets had a fair value of $19.1 billion as of December 31, 2020. In the past, even some of our very high quality investments experienced reduced liquidity during periods of market volatility or disruption. If we were required to liquidate these investments on short notice, we could have difficulty doing so and could be forced to sell them for less than we otherwise would have been able to realize. The reported values of our relatively illiquid types of investments do not necessarily reflect the current market price for the asset. If we are forced to sell certain of our assets on short notice, we could be unable to sell them for the prices at which we have recorded them, and we could be forced to sell them at significantly lower prices, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Our participation in a securities lending program and a repurchase program subjects us to potential liquidity and other risks.

We participate in a securities lending program whereby securities are loaned to third-party borrowers, primarily major brokerage firms and commercial banks. We generally obtain cash collateral in an amount based upon the estimated fair value of the loaned securities, which is typically invested in high quality mutual fund investments. A return of loaned securities by a borrower requires us to liquidate the investments held as collateral and return the cash collateral associated with such loaned securities.

We also participate in a repurchase program for our investment portfolio whereby we sell fixed income securities to third-party repurchase counterparties, primarily major brokerage firms and commercial banks, with a concurrent agreement to repurchase those same securities at a predetermined future date. At all times during the term of the repurchase agreements, collateral is maintained at a level that is sufficient to allow the counterparty to fund substantially all of the cost of purchasing replacement assets. Our repurchase agreements are generally short term and the cash proceeds received under the repurchase program are typically used for operating purposes and cannot be returned prior to the scheduled repurchase date; however, market conditions on the repurchase date could limit our ability to enter into new agreements. The repurchase of securities or our inability to enter into new repurchase agreements would require us to return the cash collateral proceeds associated with such transactions on the repurchase or maturity date.

For securities lending transactions, in some cases, the redemption of the securities held as invested collateral (i.e., securities that we have purchased with cash collateral received) could have an estimated fair value below the amount of cash received as collateral and invested. For repurchase agreements, if we are required to return significant amounts of cash collateral and are forced to sell securities to meet the return obligation, we could have difficulty selling securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than we otherwise would have been able to realize under normal market conditions, or both. In addition, under adverse capital market and economic conditions, liquidity could broadly deteriorate, which would further restrict our ability to sell securities and require us to provide additional collateral and sell securities for less than the price at which we recorded them, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

 

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The failure to understand and respond effectively to the risks associated with climate change could adversely affect our achievement of our long-term strategy.

Climate change could pose a systemic risk to the financial system. Climate change could increase the frequency and severity of weather related disasters and pandemics. Efforts to reduce greenhouse gas emissions and limit global warming could impact global investment asset valuations. There is also a risk that some asset sectors could face significantly higher costs and a disorderly adjustment to asset values leading to an adverse impact on the value and future performance of investment assets as a result of climate change and regulatory or other responses. Climate change could also impact other counterparties, including reinsurers and derivatives counterparties. A failure to identify and address these issues could cause a material adverse effect on the achievement of our strategies.

Risks Relating to the Products We Offer and Product Distribution

Our annuities contain many features and options. Failure to accurately describe the features and options or to administer features and options consistent with their descriptions could adversely impact our business, financial condition, results of operations and cash flows.

Our annuities contain many options and features, and we rely on third-party distributors to describe and explain our products to investors and our customers. There is a risk that we or our distributors fail to fully and accurately describe every option and feature in contracts, forms, regulatory filings, marketing literature, and other written descriptions. Any such failure, or any other intentional or unintentional misrepresentation of our products in advertising materials or other external communications, or inappropriate activities by our personnel or third-party distributors, could adversely affect our reputation and business, as well as lead to potential regulatory actions or litigation.

Additionally, U.S. federal income tax law imposes requirements relating to annuity and insurance product design, administration and investments that are conditions for beneficial tax treatment of such products under the Internal Revenue Code of 1986, as amended (the “Code”). State and federal securities and insurance laws also impose requirements relating to annuity and insurance product design, offering and distribution, and administration. Failure to administer product features in accordance with applicable law, or to meet any of these complex tax, securities or insurance requirements could subject us to administrative penalties imposed by a particular governmental or self-regulatory authority, unanticipated costs associated with remedying such failure or other claims, litigation, harm to our reputation or interruption of our operations. If this were to occur, it could adversely impact our business, financial condition, results of operations and cash flows.

Optional guarantee benefits within certain of our annuities could decrease our earnings, decrease our capitalization, increase the volatility of our results, result in higher risk management costs and expose us to increased counterparty risk.

Certain of the annuities we offer, certain in-force annuities we offered historically, and certain annuity risks we assumed historically through reinsurance, include optional guarantee benefits. As of December 31, 2020, 77% of our in-force annuity policies, by account value, included optional guarantee benefits. Optional guarantee benefits are designed to offer protection to customers against changes in equity markets and interest rates. The value of these guarantees is affected by market factors (such as interest rates, equity values, bond spreads and realized volatility) and customer behavior. Changes in markets could result in the requirement to hold additional reserves with respect to these products, which could negatively impact our liquidity or require us to raise additional capital. An increase in these liabilities would result in a decrease in our net income and depending on the magnitude of any such increase, could cause a material adverse effect on our financial condition, including our capitalization, as well as the financial strength and credit ratings which are necessary to support our product sales.

Additionally, we make assumptions regarding customer behavior at the time of pricing and in selecting and using the optional guarantee benefits within our products. An increase in the valuation of the liability related to these optional guarantee benefits could result to the extent emerging and actual experience deviates from these

 

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customer option use assumptions. Annually, or as circumstances warrant, we conduct a comprehensive review of our actuarial assumptions, including those assumptions relating to customer behavior, and update assumptions when appropriate. If we update our assumptions based on our actuarial assumption review in future years, we could be required to increase the liabilities we record for future policy benefits and claims to a level that causes a material adverse effect on our business, financial condition, results of operations and cash flows which, in certain circumstances, could impair our solvency. In addition, we have in the past updated our assumptions on customer behavior, which has negatively impacted our net income, and we could be required to implement further updates in the future.

In addition, derivative instruments may not effectively offset the costs of optional guarantee benefits or may otherwise be insufficient in relation to our obligations. Periods of significant and sustained downturns in securities markets, increased equity volatility, reduced interest rates, or deviations in expected customer behavior could increase the cost of executing hedges beyond what was anticipated in the pricing of the products being hedged and could produce economic losses not addressed by the risk management techniques employed. The manner in which we hedge optional guarantee benefits of our annuities could cause significant variability in our U.S. GAAP accounting results and could have adverse impacts on the level of statutory capital and the RBC ratios of our insurance subsidiaries. These factors, individually or collectively, could cause a material adverse effect on business, financial condition, results of operations and cash flows, including our ability to receive dividends from our insurance operating companies.

Our reinsurance and hedging programs could be inadequate to protect us against the full extent of the exposure or losses we seek to mitigate.

We employ various strategies, including hedging and reinsurance, with the objective of mitigating risks inherent in our business and operations. These risks include current or future changes in the fair value of our assets and liabilities, current or future changes in cash flows, the effect of interest rates, equity markets and credit spread changes, the occurrence of credit defaults and changes in mortality and longevity. We seek to manage these risks by, among other things, entering into reinsurance contracts and through our hedging program. Developing an effective strategy for dealing with these risks is complex and involves the exercise of significant subjective and complex judgments, and no strategy will completely insulate us from such risks.

Reinsurance. We use reinsurance to mitigate a portion of the risks that we face, principally in certain of our in-force annuity and life insurance products with regard to longevity and mortality risks, in certain of our annuities with regard to a portion of the GMIB features, and the in-force fixed annuities and fixed index annuities ceded to Athene. Under our reinsurance arrangements, other insurers assume a portion of the obligation to pay claims and related expenses to which we are subject. As of December 31, 2020, we have ceded approximately $35.2 billion of life and annuity reserves to third parties for reinsurance protection. Of this amount, $27.4 billion represents the in-force fixed annuities and fixed index annuities written by our subsidiary Jackson National Life ceded to Athene in June 2020 on a funds withheld coinsurance basis, and the remainder primarily relates to a closed block of corporate-owned life insurance ceded to Swiss Re in 2012 on a funds withheld coinsurance basis. We remain liable as the direct insurer on all risks we reinsure and, therefore, are subject to the risk that a reinsurer is unable or unwilling to pay or reimburse claims at the time demand is made. If a reinsurer is unable or unwilling to pay or reimburse claims, which could result in our recapturing of the business, and which could result in a need to maintain additional reserves, reduce reinsurance receivables and expose us to additional risks. The collectability of reinsurance is largely a function of the solvency of the individual reinsurers.

The premium rates and other fees that we charge are based, in part, on the assumption that reinsurance will be available at a certain cost. Some of our reinsurance contracts contain provisions that limit the reinsurer’s ability to adjust terms on in-force business; however, some do not. If a reinsurer adjusts the terms with respect to a block of in-force business, we may not be able to pass increased costs on to our customers and our profitability will be negatively impacted. Additionally, such a rate increase could result in our recapturing of the business, which could result in a need to maintain additional reserves, reduce reinsurance receivables and expose us to greater risks. In addition, market conditions beyond our control determine the availability and cost of reinsurance for new business and could negatively impact our competitive position.

 

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In addition, if a reinsurer does not have certified reinsurer status, or if a currently certified reinsurer loses that status, in any state where we are licensed to do business, we are not entitled to take credit for reinsurance in that state if the reinsurer does not post sufficient qualifying collateral. In this event, we would be required to establish additional statutory reserves and statutory required capital. Similarly, the credit for reinsurance taken by our insurance subsidiaries under reinsurance agreements with non-certified reinsurers, under certain conditions, depends on the non-certified reinsurer’s ability to obtain and provide sufficient qualifying assets in a qualifying trust or qualifying letter of credit issued by qualifying lending banks. If non-certified reinsurers that reinsure business from our insurance subsidiaries are unsuccessful in obtaining sources of qualifying reinsurance collateral, our insurance subsidiaries might not be able to obtain full statutory reserve credit. Loss of reserve credit by an insurance subsidiary would require it to establish additional statutory reserves and would result in a decrease in the level of its capital, which could have a material adverse effect on our profitability, financial condition, results of operations and cash flows.

No assurances can be made that reinsurance will remain continuously available to us to the same extent and on the same terms as are currently available. If we were unable to purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we would have to accept an increase in our net liability exposure or a decrease in our statutory surplus, reduce the amount of business we write or develop other alternatives to reinsurance, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Hedging Programs. We utilize derivatives to mitigate a portion of the risks that we face, principally in certain of our in-force annuity and life insurance products with regard to longevity and mortality risks and specific features of our variable annuities. Our hedging program seeks to balance three objectives: protecting against the economic impact of adverse market conditions, protecting our statutory capital and stabilizing our statutory distributable earnings throughout market cycles. In certain cases, however, we may not be able to effectively hedge these risks because the derivatives markets in question may not be of sufficient size or liquidity, an operational error in the application of our hedging strategy could occur, or for other reasons. For example, if levels of volatility in the equity and interest rate markets significantly exceed our assumptions or there are significant deviations between actual and assumed surrender and withdrawal rates, it is possible that our revenues will not be sufficient to fund the annual index credits on our fixed index annuities and the value of contract investments will be less than the value of benefits guaranteed on certain of our annuities. The balance among the three objectives of our hedging program may shift over time based on our capital position, market conditions and other needs of the business. For example, in 2020 our total level of hedging requirements under our risk framework were higher as a result of our level of statutory capital and our focus on protecting statutory capital in preparation for the Demerger.

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 or from such hedge assets not being available in sufficient volume for us to fully offset our exposures. We seek to mitigate basis risk and the impact it may have on our financial results in a number of ways.

When we consider making new funds available to customers, our Asset Liability Management group performs an independent evaluation, and basis risk is one of the factors we consider. This evaluation includes analyzing multiple fund characteristics, such as how closely the funds track benchmarks that we are able to hedge. We periodically review the performance of the funds we offer within our variable annuities to identify potential candidates for elimination or replacement. During this review, we also evaluate historical fund performance under our basis risk framework. In particular, we check whether funds tend to exhibit poor basis risk performance when their benchmarks have negative returns, as periods of market stress may heighten the impact of basis risk.

We purchase derivatives on various underlying indices, such as the MSCI EAFE and EM indices, and we also monitor the individual holdings of the funds we offer within our variable annuities on an ongoing basis. We impose limits on the overall concentration in a single company as excessive concentration may cause the

 

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performance of these funds to further deviate from the hedge assets we utilize. Although we cannot directly control these funds’ investments, we seek to offset excessively concentrated exposures using derivatives tied to these specific companies.

Finally, our Asset Liability Management group monitors basis risk daily and typically reports the basis risk impact (net of basis risk hedges) on both statutory and economic bases on a monthly basis to our Asset Liability Management Committee. However, we still anticipate some variance in the performance of our hedge assets compared to funds into which customers allocate their assets. 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. If results from our hedging programs in the future do not correlate with changes in benefit exposures to customers, we could experience both economic and statutory losses which could cause a material adverse impact on our business, financial condition, statutory balance sheet, results of operations and cash flows.

The manner in which we hedge optional guarantee benefits of our annuities could cause significant variability in our U.S. GAAP accounting results and have adverse impacts on the level of statutory capital and the RBC ratios of our insurance subsidiaries. Further, the nature, timing, design or execution of our hedging transactions could actually increase our risks and losses. Our hedging strategies and the derivatives that we use, or may use in the future, may not adequately mitigate or offset the hedged risk and our hedging transactions could result in losses. In addition, we remain liable for the guaranteed benefits in the event that derivative counterparties are unable or unwilling to pay, and we are also subject to the risk that the cost of hedging these guaranteed benefits could increase, resulting in a reduction to net income. The risks that the value of guaranteed benefits will exceed the value of underlying contracts or that counterparties to derivative agreements designed to hedge against such risk default on payment obligations could, individually or collectively, cause a material adverse effect on our business, financial condition, results of operations and cash flows.

A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Financial strength ratings, which various rating agencies publish as measures of an insurance company’s ability to meet customer obligations, are important to maintaining public confidence in our products, the ability to distribute our products and our competitive position. Credit ratings are important to our ability to raise capital through the issuance of debt and to the cost of such financing.

A ratings downgrade could occur for a variety of reasons specific to us, generally related to the insurance industry, the broader financial services industry, or because of changes by rating agencies in their methodologies or rating criteria. Jackson National Life, our primary insurance company subsidiary, has financial strength ratings of A by Standard & Poor’s and Fitch, A2 by Moody’s and A by A.M. Best. Rating agencies have cited Prudential’s ownership of Jackson National Life, the relative importance of Jackson National Life to Prudential’s business and Prudential’s historical capital contributions to Jackson National Life as among the many factors supporting our ratings. Our ratings were revised downward by Fitch Ratings, S&P Global and A.M. Best following Prudential’s announced plans to prepare for our separation. We could face additional downgrades as a result of future sales of our Class A common stock by Prudential.

A negative outlook on our ratings or a downgrade in any of our ratings, the announcement of a potential downgrade, or customer concerns about the possibility of a downgrade, could cause a material adverse effect on our business, financial condition, results of operations and cash flows. These direct or indirect effects could include:

 

   

adversely affecting our ability to sell certain of our products;

 

   

adversely affecting our relationships with our sales force and independent sales intermediaries;

 

   

adversely affecting the return on the insurance and annuities we issue and, ultimately, the results of our operations;

 

   

materially increasing the number or amount of policy surrenders and withdrawals by customers;

 

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adversely affecting our ability to obtain new reinsurance or obtain it on reasonable pricing terms;

 

   

adversely affecting our ability to raise capital;

 

   

adversely affecting liquidity through increased collateral requirements;

 

   

adversely affecting our ability to purchase new derivatives contracts, on acceptable terms or at all;

 

   

allowing derivative counterparties to terminate trades with us;

 

   

adversely affecting our ability to compete for attractive acquisition opportunities; and

 

   

increasing our cost of borrowing.

Competitive activity could adversely affect our market share and financial results, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

The insurance industry is highly competitive, with several factors affecting our ability to sell our products and our profitability, including price and yields offered, financial strength and credit ratings, range of product lines and product quality, brand strength and name recognition, investment management performance and fund management trends, crediting levels, the ability to respond to developing demographic trends, customer appetite for certain products and technological advances. In some of our markets, we face competitors that are larger, have greater financial resources or a greater market share, have better brand recognition, offer a broader range of products or have higher crediting rates. Our competitors include major stock and mutual insurance companies, mutual fund organizations, banks and other financial services companies. In recent years, there has been substantial consolidation and convergence among companies in the insurance and financial services industries resulting in increased competition from large, well-capitalized insurance and financial services firms that market products and services similar to ours. These competitors compete with us for customers, distribution partners, such as brokers and independent agents, and employees. Increased consolidation among banks and other financial services companies could create firms with even stronger competitive positions, negatively impact the insurance industry’s sales, increase competition for access to third-party distributors, result in greater distribution expenses and impair our ability to market our annuities to our current customer base or expand our customer base. We depend on our network of financial advisors in the independent broker-dealer channel for a significant portion of the sales of our annuities. The market for these financial advisors is highly competitive. If our competitors offer annuities that are more attractive than ours, pay higher commission rates to financial advisors than we do or offer a better service experience than we do, these financial advisors may concentrate their efforts in selling our competitors’ products instead of ours.

Some of our competitors have the ability to spread their operating costs over a larger in-force block and an ability to absorb greater risk while maintaining their financial strength and credit ratings, thereby allowing them to price their products more competitively. Additionally, we are faced with competition from other products, including non-insurance products such as mutual funds, certificates of deposit and newly developed investment products. These competitive pressures could result in increased pricing pressures on a number of our products and services and could harm our ability to maintain or increase our profitability. In addition, if our financial strength and credit ratings are lower than our competitors, we could experience increased surrenders or a significant decline in sales. The competitive landscape in which we operate could be further affected by government sponsored programs or regulatory changes in the United States and similar governmental actions outside of the United States. Competitors that receive governmental financing, guarantees or other assistance, or that are not subject to the same regulatory constraints, could have or obtain pricing or other competitive advantages. We may not continue to compete effectively, and competitive activity could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

We also face competition from new entrants into our markets or non-traditional or online competitors, many of whom are leveraging digital technology that could challenge the position of traditional financial service companies, including us, by providing new services or creating new distribution channels. We believe competition will intensify across all regions in response to consumer demand, digital and other technological advances, the need for economies of scale and the consequential impact of consolidation, regulatory actions and other factors. Our ability to generate appropriate returns will depend significantly on our capacity to anticipate and respond appropriately to these competitive pressures.

 

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Our historical growth rates may not be indicative of our future growth, and we may not be able to identify attractive growth opportunities.

Our historical growth rates may not reflect our future growth rates. Our future growth depends on our ability to continue to offer and sell products that investors and our distribution partners find attractive. We may not be able to identify opportunities to grow our business by developing new products and entering new markets. With future growth, our returns may not be as favorable as our historic returns. If we are unable to find profitable growth opportunities, it will be more difficult for us to continue to grow, which could negatively affect our business, financial condition, results of operations and cash flows.

Risks Relating to Estimates, Assumptions and Valuations

We rely on complex models which contain assumptions and could contain errors, which could result in materially inaccurate risk assessments and output.

We use complex models to assist us in establishing reserves and derivative positions in respect of liabilities arising from our insurance policies and annuity contracts and to perform a range of operational functions including the calculation of regulatory or internal capital requirements and determining hedging requirements. Some of these tools form an integral part of our information and decision-making framework and there is a risk of adverse consequences arising from erroneous or misinterpreted tools used in core business activities, decision making and reporting. These models involve many significant subjective and complex judgments, estimates and assumptions, including, among others, mortality, lapse, surrender and withdrawal rates and amounts of withdrawals, election rates, fund performance, equity market returns and volatility, interest rate levels, hedge effectiveness and correlation among various market movements. Actual experience could differ materially from our assumptions, particularly, but not only, during periods of high market volatility, which could adversely impact our business, financial condition, results of operations and cash flows.

Due to the complexity and large data dependency of such models, it is possible that errors in the models or their assumptions could exist and our controls could fail to detect such errors. If our controls designed to identify such errors fail, such errors could be undetected for extended periods of time. Errors or limitations in these tools, or inappropriate usage, may lead to regulatory breaches, inappropriate decision-making, financial loss, or reputational damage. We periodically review the effectiveness of these models, their underlying logic and assumptions and, from time to time, implement refinements to our models based on these reviews. We only implement refinements after rigorous testing and validation; however, even after such validation and testing our models remain subject to inherent limitations. Accordingly, no assurances can be given as to whether or when we will implement refinements to our actuarial models, and, if implemented, the extent of such refinements. Furthermore, if implemented, any such refinements could cause us to increase the reserves we hold for our insurance policy and annuity contract liabilities or adjust our derivative positions, which could adversely affect our business, financial condition, results of operations and cash flows. For example, at December 31, 2019, we early adopted the provisions of the NAIC’s VM-21 reserving framework. During 2020, we determined that a simplifying modeling assumption was not consistent with our intent in the adoption of VM-21. The adjustment resulting from this correction and related modeling changes reduced Jackson National Life’s RBC ratio by 80 percentage points. The Company determined this adjustment to be a correction of an error that was not material to the current year or the 2019 statutory annual financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Statutory Capital.”

Our risk management policies and procedures may not be adequate to identify, monitor and manage risks, which could leave us exposed to unidentified or unanticipated risks, thus negatively affecting our business, financial condition, results of operations and cash flows.

Our policies and procedures to identify, monitor and manage risks may not be adequate or fully effective. Many of our methods of managing risk and exposures are based upon our use of historical market and customer behavior or statistics based on historical models. As a result, these methods will not predict future exposures, which could be significantly greater than the historical measures indicate, such as the risk of terrorism or pandemics causing a large number of deaths or disruption to the financial markets or economy. Our hedging and reinsurance strategies also rely on assumptions and projections regarding our assets, liabilities, general market factors and the creditworthiness of our counterparties that could prove to be incorrect or prove to be inadequate. Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence

 

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or other matters that is publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record and verify large numbers of transactions and events. These policies and procedures may not be fully effective. Accordingly, our risk management policies and procedures may not adequately mitigate the risks to our business, financial condition, results of operations and cash flows.

Our analyses of scenarios and sensitivities that we utilize in connection with our variable annuity risk management strategies involve significant estimates based on assumptions and could therefore result in material differences from actual outcomes compared to the sensitivities calculated under such scenarios.

As part of our variable annuity exposure risk management program, we may, from time to time, estimate the impact of various market factors under certain scenarios on our variable annuity distributable earnings or our reserves (collectively, the “market sensitivities”). Any such market sensitivities may use inputs which are difficult to approximate and could include estimates that differ materially from actual results. Any such estimates, or the absence thereof, could be associated with, among other things: (i) basis returns related to equity or fixed income indices, (ii) actuarial assumptions related to customer behavior and life expectancy and (iii) management actions that may occur in response to developing facts, circumstances and experience for which no estimates are made in any market sensitivities. Any such estimates, or the absence thereof, could produce sensitivities that could differ materially from actual outcomes and therefore affect our actions in connection with our exposure risk management program.

In addition, any market sensitivities may not factor in the possibility of simultaneous shocks to equity markets, interest rates and market volatility. The actual effect of changes in equity markets and interest rates on the assets supporting our variable annuity contracts could vary depending on a number of factors which could include, but are not limited to: (i) the validity of any market sensitivities only as of a particular measurement date and (ii) any changes in our hedging program, customer behavior and underlying fund performance, which could materially affect the liabilities our assets support. Furthermore, any market sensitivities could illustrate the estimated impact of the indicated shocks occurring instantaneously and therefore may not give effect to rebalancing over the course of the shock event. The estimates of equity market shocks could reflect a shock of the same magnitude to both domestic and global equity markets, while the estimates of interest rate shocks may reflect a shock to rates at all durations (a parallel shift in the yield curve). Any such instantaneous or equilateral impact assumptions could result in estimated sensitivities that could differ materially from the actual events.

Finally, no assurances can be given that the assumptions underlying any market sensitivities will be realized. Our liquidity, statutory capitalization, results of operations and financial condition could be adversely affected by a broad range of capital market scenarios, which could materially affect our reserving requirements and, by extension, could materially affect the accuracy of estimates used in any market sensitivities.

If our reserves for future policy benefits and claims are misestimated and inadequate, we would be required to increase our reserve liabilities.

We calculate and maintain reserves for estimated future benefit payments to our customers. We release these reserves as those future obligations are extinguished. The reserves we establish necessarily reflect estimates and actuarial assumptions with regard to our future experience. These estimates and actuarial assumptions include, but are not limited to, estimates and assumptions related to future mortality, morbidity, longevity, interest rates, future equity performance, reinvestment rates, persistency, claims experience and customer elections (i.e., the exercise or non-exercise of rights by customers under the contracts). Examples of customer elections include, but are not limited to, lapses and surrenders, withdrawals and amounts of withdrawals, and contributions and the allocation thereof. The assumptions and estimates used in connection with the reserve estimation process are inherently uncertain and involve the exercise of significant judgment. Annually, or as circumstances warrant, we conduct a comprehensive review of the assumptions used in connection with the reserve estimation process. Based on this review, reserves may be adjusted with a corresponding benefit or charge to net income. Our future financial results depend upon the extent to which our actual future experience is consistent with the assumptions we have used in pricing our products and determining our reserves. Many factors affect future experience, including economic, political and social conditions, inflation, healthcare costs and changes in doctrines of legal liability and damage awards in litigation. The ultimate amounts we will pay for actual future benefits and the timing of those payments is uncertain.

 

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We regularly monitor our reserves. If we conclude our reserves are insufficient to cover actual or expected policy and contract benefits and claims payments, we would be required to increase our reserves and incur income statement charges in the period in which it is determined, which could adversely affect our business, financial condition, results of operations and cash flows.

We could face unanticipated losses if there are significant deviations from our assumptions regarding the probabilities that our annuity contracts will remain in force from one period to the next or if morbidity or mortality rates differ significantly from our pricing expectations.

Our future profitability is based in part upon expected patterns of premiums, expenses and benefits using a number of assumptions, including those related to the probability that a policy or contract will remain in force from one period to the next, or persistency, as well as mortality and morbidity. It is not possible to precisely predict persistency, mortality or morbidity, and actual results could differ significantly from assumptions. The effect of persistency on profitability varies for different products. For certain products, actual persistency that is lower than assumptions could have an adverse impact on future profitability. In addition, we could also be forced to sell investments at a loss to fund withdrawals. For some life insurance and variable annuities, actual persistency in later policy durations that is higher than assumed persistency could also have a negative impact on profitability. If these policies remain in force longer than assumed, we could be required to make greater benefit payments than we had anticipated when we priced these products.

In addition, we set prices and initial crediting rates for our annuities based upon expected claims and payment patterns, using assumptions for, among other factors, the mortality rates and morbidity rates of our customers. The long-term profitability of these products depends on how actual experience compares with pricing assumptions. For example, if mortality rates are lower than pricing assumptions, we could be required to make greater payments under certain annuity contracts than we had projected.

Because our assumptions are inherently uncertain, reserves for future policy benefits and claims may prove to be inadequate if actual experience is different from our assumptions. Although certain of our products permit us to increase premiums or reduce benefits during the life of the policy or contract, these changes may not be sufficient to maintain profitability. Moreover, many of our products either do not permit us to increase premiums or reduce benefits or may limit those changes during the life of the policy or contract. Therefore, significant deviations in experience from assumptions regarding persistency and mortality and morbidity rates could have an adverse effect on our business, financial condition, results of operations and cash flows.

The determination of the amount of allowances and impairments taken on our investments is subjective and could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

The determination of the amount of allowances and impairments vary by investment type and is based upon our evaluation and assessment of known and inherent risks associated with the respective asset class. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. Management’s judgments, as reflected in our financial statements, may not be an accurate estimate of the actual and eventual diminution in realized value. Historical trends may not be indicative of future impairments or allowances. Furthermore, we may need to take additional impairments or provide for additional allowances in the future, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

We define fair value generally as the price that would be received to sell an asset or paid to transfer a liability. When available, the estimated fair value of securities is based on quoted prices in active markets that are readily and regularly obtainable. These generally are the most liquid holdings and their valuation does not involve management judgment. When quoted prices in active markets are not available, we estimate fair value based on market standard valuation methodologies, including discounted cash flow methodologies, matrix pricing, or other similar techniques. For securities with reasonable price transparency, the significant inputs to these valuation methodologies either are observable in the market or are derivable principally from or corroborated by observable market data. When the volume or level of activity results in little or no price transparency, significant inputs are not supported by reference to market observable data and must be based on management’s estimation and judgment. Valuations could result in

 

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estimated fair values which vary significantly from the amount at which the investments may ultimately be sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within our financial statements and the period-to-period changes in estimated fair value could vary significantly. Decreases in the estimated fair value of securities we hold could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

We could be required to recognize impairment in the value of our goodwill or VOBA or establish a valuation allowance against deferred income tax assets, any of which could adversely affect our business, financial condition, results of operations and cash flows.

The present value of future profits embedded in acquired insurance, annuity and investment-type contracts are capitalized as value of business acquired (“VOBA”) and are amortized over the expected effective lives of the acquired contracts in accordance with applicable insurance laws. Under NAIC guidance, these profits may be capitalized as goodwill, subject to certain limitations. Management, on an annual basis, reviews the VOBA and goodwill balance for impairments. Based on results of the annual review, the VOBA and goodwill balance may be reduced with an offsetting charge to amortization. Any reductions in VOBA and goodwill could have an adverse effect on our business, financial condition, results of operations and cash flows.

Deferred income taxes arise from the recognition of temporary differences between the basis of assets and liabilities for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the effects of provisions for future policy benefits and expenses. Deferred tax assets are assessed periodically by management to determine if they are realizable. Factors in management’s determination include the performance of the business, the geographic and legal entity source of our income, the ability to generate capital gains from a variety of sources and tax planning strategies. If it is more likely than not that the deferred income tax asset will not be realized, then a valuation allowance must be established with a corresponding charge to net income. Such charges could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

The returns that we expect to achieve on our investment portfolio may not be realized.

We make certain assumptions regarding our future financial performance which are embedded within our pricing process and other models upon which our financial reporting is based, including reserve and DAC related models. Included within these assumptions are estimates regarding the level of returns to be achieved on our investment portfolio. These returns are subject to market and other factors and we can give no assurance that they will ultimately be achieved. Actual results may differ, perhaps significantly, from our current expectations. To the extent that such differences occur, our future financial performance may be materially and adversely different than that communicated in this information statement and elsewhere.

Legal and Regulatory Risks

Our businesses are heavily regulated and changes in regulation could reduce our profitability and limit our growth.

Our annuities and our insurance company subsidiaries are subject to extensive and potentially conflicting state and federal tax, securities, insurance and employee benefit plan laws and regulations in the jurisdictions in which we operate. These laws and regulations are complex and subject to change, which could have an unknown or adverse impact on us. Moreover, these laws and regulations are administered and enforced by a number of different governmental and self-regulatory authorities, including state insurance regulators, state securities administrators, the SEC, FINRA, the DOL, the United States Department of Justice, the IRS and state attorneys general, each of which exercises a degree of interpretive latitude. In addition, state insurance regulators and the NAIC regularly re-examine existing laws and regulations applicable to insurance companies and their products. In some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. For example, state insurance laws and regulations are generally intended to protect or benefit purchasers or users of insurance products, not investors. In addition,

 

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federal and state securities laws and regulations apply to certain of our insurance products that are considered “securities” under such laws, including our variable annuity contracts. In many respects, these laws and regulations limit our ability to grow and improve the profitability of our business.

State Regulation

We are subject to extensive supervision and regulation in the states in which we do business. The supervision and regulation relate to numerous aspects of our business and financial condition. The primary purpose of the supervision and regulation is the protection of our customers and the public, rather than our stockholders. The extent of regulation varies, but generally is governed by state statutes. These statutes delegate regulatory, supervisory and administrative authority to state insurance departments. This system of supervision and regulation covers, among other things:

 

   

Market conduct standards;

 

   

Standards of minimum capital requirements and solvency, including RBC measurements;

 

   

Restrictions on certain transactions, including, but not limited to, reinsurance between us and our affiliates;

 

   

Restrictions on the nature, quality and concentration of investments;

 

   

Restrictions on the receipt of reinsurance credit;

 

   

Restrictions on the types of conditions that we may include in the insurance policies offered by our primary insurance operations;

 

   

Limitations on the amount of dividends that we may pay;

 

   

Licensing status of the company;

 

   

Certain required methods of accounting pursuant to SAP;

 

   

Reserves for losses and other purposes;

 

   

Payment of policy benefits (claims); and

 

   

Assignment of guarantee funds assessments and potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies.

Changes in these laws and regulations, or in interpretations thereof in the United States, may be made for the benefit of the consumer or, for other reasons, at the expense of the insurer, and could have an adverse effect on our business, financial condition, results of operations and cash flows. For example, the NAIC adopted reforms relating to the calculation of life insurance and annuity reserves for new business known as principle-based reserving, which became effective on January 1, 2017 in the states where it has been adopted, such as Michigan, to be followed by a three-year phase-in period. New York has enacted legislation allowing principle-based reserving, effective as of January 1, 2020. New York’s implementing regulation establishes that the reserving standard in New York will be consistent with the reserve standards, valuation methods and related requirements of the NAIC Valuation Manual (the “Valuation Manual”), while also authorizing the NYSDFS to deviate from the Valuation Manual, by regulation, if it determines that an alternative requirement would be in the best interest of New York customers. We cannot predict how future changes to or interpretations of principle-based reserving, if any, will impact our reserves or compliance costs.

In 2018, the NAIC concluded an industry consultation and published a new framework with the NAIC Valuation Manual (VM-21), developed with the aim of reducing the non-economic volatility in the variable annuity statutory balance sheet and enhancing risk management. The framework applies to variable annuities’ reserve and capital requirements and, among other things, is expected to produce more stable RBC ratios compared to the prior statutory framework. The NAIC guidance had an effective date of January 2020 for the new framework, with early adoption permitted. We early adopted the new framework for Jackson National Life in the period ending

 

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December 31, 2019. Jackson National Life NY adopted the variation of the new framework applicable to New York-domiciled companies (promulgated through NY Regulation 213 in early 2020) in 2020. Predicting the ultimate impact of the new framework on our business, financial condition, results of operations and cash flows remains uncertain. During 2020, we determined that a simplifying modeling assumption was not consistent with our intent in the early adoption of VM-21. The adjustment resulting from this correction and related modeling changes reduced Jackson National Life’s RBC ratio by 80 percentage points. We determined this adjustment to be a correction of an error that was not material to the current year or the 2019 statutory annual financial statements. This adjustment and related impact on required capital is reflected in Jackson National Life’s RBC ratio of 347% as of December 31, 2020, contributing to the decline from the RBC Ratio as of December 31, 2019 of 366%. The overall decrease in the RBC ratio from 2019 was also impacted by reductions from the impact of market movements where falling interest rates, rising equity markets and elevated volatility combined to result in derivative losses net of reserve changes and an increase in required capital; partially offset by: (i) benefits from operating capital generation from the in-force business in line with our expectations post the Athene Reinsurance Transaction; and (ii) benefits from the $500 million investment by Athene and the Athene reinsurance transaction covering our in-force fixed annuity and fixed-indexed annuity portfolio. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Statutory Capital.”

Also, banking regulators across the globe have adopted rules that apply to certain qualified financial contracts, including many derivatives contracts, securities lending agreements and repurchase agreements, with certain banking institutions and certain of their affiliates. These rules generally require the banking institutions and their applicable affiliates to include contractual provisions in their qualified financial contracts that limit or delay certain rights of their counterparties, including counterparties’ default rights (such as the right to terminate the contracts or foreclose on collateral) and restrictions on assignments and transfers of credit enhancements (such as guarantees) arising in connection with the banking institution or an applicable affiliate becoming subject to a bankruptcy, insolvency, resolution or similar proceeding. Our qualified financial contracts are subject to these rules. As a result, we amended our existing qualified financial contracts with the relevant banking institutions and their affiliates by adhering to the various ISDA Resolution Stay Protocols. If any of our counterparties became subject to a bankruptcy, insolvency, resolution, or similar proceeding, the application of these rules could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

We are monitoring any regulatory action that could potentially impact our business. At this time, we cannot predict what form those regulations could take or their potential impact.

Federal Insurance Regulation

Currently, the U.S. federal government does not directly regulate the business of insurance. However, Dodd-Frank established the Federal Insurance Office (“FIO”) within the Department of the Treasury, which has the authority to, among other things, collect information about the insurance industry and recommend prudential standards. Federal legislation and administrative policies could significantly and adversely affect insurance companies, including policies regarding financial services regulation, securities regulation, derivatives regulation, pension regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct and indirect federal regulation of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter for insurance companies. We cannot predict whether any such legislation or regulatory changes will be adopted, or what impact they would have on our business, financial condition, results of operations and cash flows.

A decrease in the RBC ratio (as a result of a reduction in statutory capital and surplus or increase in RBC requirements) of our insurance subsidiaries could result in increased scrutiny by insurance regulators and rating agencies and cause a material adverse effect on our business, financial condition, results of operations and cash flows.

The NAIC has established model regulations that provide minimum capitalization requirements based on RBC formulas for insurance companies. Each of our U.S. insurance subsidiaries is subject to RBC standards or other minimum statutory capital and surplus requirements imposed under the laws of its respective jurisdiction of domicile.

 

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In any particular year, total adjusted capital amounts and RBC ratios could increase or decrease depending on a variety of factors, including the amount of statutory income or losses generated by the insurance subsidiary (which itself is sensitive to equity market and credit market conditions), the amount of additional capital such insurer must hold to support business growth, changes in equity market levels, the value and credit ratings of certain fixed income and equity securities in its investment portfolio, the value of certain derivative instruments that do not receive hedge accounting and changes in interest rates, as well as changes to the RBC formulas and the interpretation of the NAIC’s instructions with respect to RBC calculation methodologies. For example, during 2020, we determined that a simplifying modeling assumption was not consistent with our intent in the early adoption of VM-21. The adjustment resulting from this correction and related modeling changes reduced Jackson National Life’s RBC ratio by 80 percentage points. This adjustment and related impact on required capital is reflected in Jackson National Life’s RBC ratio of 347% as of December 31, 2020, contributing to the decline from the RBC ratio as of December 31, 2019 of 366%. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Statutory Capital.” Our financial strength and credit ratings are significantly influenced by total adjusted capital amounts and RBC ratios. In addition, rating agencies may implement changes to their own internal models, which differ from the RBC capital model, and that have the effect of increasing or decreasing the amount of capital our insurance subsidiaries should hold relative to the rating agencies’ expectations. Under stressed or stagnant capital market conditions and with the aging of existing insurance liabilities, without offsets from new business, the amount of additional statutory reserves that an insurance subsidiary is required to hold could materially increase. These factors would decrease the total adjusted capital available for use in calculating the subsidiary’s RBC ratio. To the extent that an insurance subsidiary’s RBC ratio is deemed to be insufficient, we may seek to take actions either to increase the capitalization of the insurer or to reduce the capitalization requirements. If we were unable to accomplish such actions, the rating agencies could view this as a reason for a ratings downgrade.

The failure of any of our insurance subsidiaries to meet their applicable RBC requirements or minimum capital and surplus requirements could subject them to further examination or corrective action imposed by insurance regulators, including limitations on their ability to write additional business, supervision by regulators, or seizure or liquidation. Any corrective action imposed could cause a material adverse effect on our business, financial condition, results of operations and cash flows. A decline in RBC ratio, whether or not it results in a failure to meet applicable RBC requirements, could limit the ability of an insurance subsidiary to make dividends or distributions to us, could result in a loss of customers or new business, or could be a factor in causing ratings agencies to downgrade financial strength ratings, each of which could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Legal and regulatory investigations and actions are increasingly common in our industry and could result in a material adverse effect on our business, financial condition, results of operations and cash flows.

We face a significant risk of litigation and regulatory investigations and actions in the ordinary course of operating our business, including the risk of class action lawsuits, arbitration claims, government subpoenas, regulatory investigations and actions and other claims. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. See Note 14 to our financial statements included elsewhere in this information statement. Our operations could become subject to individual lawsuits, class action lawsuits and regulatory actions relating, among other things, to sales or underwriting practices; payment of contingent or other sales commissions; claims payments, refunds, practices and procedures; product design; disclosure; administration; additional premium charges for premiums paid on a periodic basis; interest crediting practices; denial or delay of benefits; charging excessive or impermissible fees; alleged misconduct by our employees and agents; failure to properly supervise representatives with agents or other persons with whom we do business; breaches of fiduciary or other duties to customers; and alleged misconduct by our employees. We are also subject to a variety of complaints and investigations concerning employment matters as part of our ordinary course of business. Plaintiffs in class action and other lawsuits against us may seek very large or indeterminate amounts, including punitive or non-economic compensatory and treble damages, which could remain unknown for substantial periods of time. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive or non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards also are subject to very limited appellate review.

 

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The insurance industry has been the focus of increased scrutiny and class action lawsuits related to cost of insurance (“COI”) charges. These lawsuits allege that insurers have improperly included factors when calculating COI charges not authorized by the contract and that insurers have improperly failed to reduce COI charges to reflect improved mortality experience. In certain COI class action lawsuits, companies have made significant settlement payments or been held liable with significant monetary judgments. We have been subject to COI class action lawsuits in the past, and there can be no assurance we will not face scrutiny and class action lawsuits related to COI in the future. The insurance industry has also been subject to a variety of other actions, including cases challenging adherence to policy terms and marketing of policies. In addition, FINRA and state regulators have increasingly scrutinized annuity sales to and the alleged unsuitability of these sales to seniors.

We are subject to various regulatory inquiries, such as information requests, subpoenas, market conduct exams and books and record examinations, from state and federal regulators and other authorities, which could result in fines, recommendations for corrective action or other regulatory actions. Federal and state regulators have focused on, and continue to devote substantial attention to, the mutual fund, variable annuity and insurance product industries, including the broker-dealer system. As a result of publicity relating to widespread perceptions of industry abuses, there have been numerous regulatory inquiries and proposals for legislative and regulatory reforms.

Increased cybersecurity threats and computer crime also pose a risk of litigation, regulatory investigations and other penalties. Data privacy is subject to frequently changing rules and regulations regarding the handling of personal data, such as the General Data Protection Regulation and the California Consumer Privacy Act. Any breach in our information technology security systems could result in the disclosure or misuse of confidential or proprietary information, including sensitive customer, supplier or employee information maintained in the ordinary course of our business. Any such event, or any failure to comply with these data privacy requirements or other laws in this area, could cause damage to our reputation, loss of valuable information or loss of revenue and could result in legal liability or penalties. In addition, we could incur large expenditures to investigate or remediate, to recover data, to repair or replace networks or information systems, or to protect against similar future events.

The frequency of large damage awards, including large punitive or non-economic compensatory damage awards and regulatory fines that bear little or no relation to actual economic damages incurred, continues to create the potential for an unpredictable judgment in any given matter. Given the large or indeterminate amounts sometimes sought, and the inherent unpredictability of litigation, it is also possible that defense and settlement costs and the unfavorable resolution of one or more pending litigation matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A substantial legal liability or a significant federal, state or other regulatory action against us, as well as regulatory inquiries or investigations, could divert management’s time and attention, could create adverse publicity and harm our reputation, result in material fines or penalties, result in significant expense, including legal costs, and otherwise cause a material adverse effect on our business, financial condition, results of operations and cash flows. For example, we are subject to a Consent Decree that resolved a class action lawsuit involving claims of race, gender and national origin discrimination brought by the Equal Employment Opportunity Commission, which was entered in the U.S. District Court for the District of Colorado on January 7, 2020 and is operative for four years. No findings of liability or wrongdoing were made in connection with this matter. The terms of the Consent Decree required us to pay $20.5 million in monetary damages and take corrective actions. The monetary damages have been paid in full. The corrective actions include the appointment of an independent consultant who, among other things, monitors our compliance with the Consent Decree and reviews the policies and procedures subject to the Consent Decree. We have made certain estimates for potential costs associated with the corrective actions required by the Consent Decree based upon consultation with legal counsel. Actual results could differ from these estimates; however, such costs are not expected to be material.

Current or future litigation, regulatory actions and investigations could have an adverse effect on our business. Litigation and regulatory actions are inherently unpredictable, and a substantial legal liability or a significant regulatory action against us could have an adverse effect on our business. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, it could suffer significant reputational harm, which could have an adverse effect on our business. Increased regulatory scrutiny and any resulting investigations or proceedings could result in new legal actions or precedents and industry-wide regulations or practices that could adversely affect our business, financial condition, results of operations and cash flows.

 

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Our investment management business is heavily regulated, and changes in regulation and in supervisory and enforcement policies could limit our growth and cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Virtually all aspects of our investment management business are subject to federal and state laws and regulations, rules of securities regulators and exchanges, and laws and regulations in the foreign jurisdictions in which our subsidiaries conduct business. If we violate any of these laws or regulations, we could be subject to civil liability, criminal liability or sanction, including restriction or revocation of our professional licenses or registrations, restriction on the ability to collect fees for services provided, revocation of the licenses of our employees, censures, fines, or temporary suspension or permanent bar from conducting business. A regulatory proceeding, even if it does not result in a finding of wrongdoing or sanction, could require substantial expenditures of time and money and could potentially damage our reputation. Any such liability or sanction could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Increasingly, our Investment Advisory Subsidiaries must manage actual and potential conflicts of interest, including situations where their services to a particular client conflict, or are perceived to conflict, with the interests of another client. Failure to adequately address potential conflicts of interest could adversely affect our reputation and business prospects. Our Investment Advisory Subsidiaries have procedures and controls that are designed to identify and mitigate conflicts of interest, including those designed to prevent the improper sharing of information. However, appropriately managing conflicts of interest is complex. Our Investment Advisory Subsidiaries’ reputation could be damaged and the willingness of clients to enter into transactions in which such a conflict may arise could be adversely affected if our Investment Advisory Subsidiaries fail, or appear to fail, to deal appropriately with actual or perceived conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions.

Our investment advisory agreements with clients, and our selling and distribution agreements with various financial intermediaries and consultants, are subject to termination or non-renewal on short notice.

Our Investment Advisory Subsidiaries’ written investment management agreements with their clients are terminable without penalty at any time or upon relatively short notice by either party. Moreover, our Investment Advisory Subsidiaries’ investment management agreements with SEC-registered investment companies (each, a “RIC”), including the RICs affiliated with Jackson National Life that serve as the sole investment options for our variable annuities, may be terminated at any time, without payment of any penalty, by the RIC’s board of trustees or by vote of a majority of the outstanding voting securities of the RIC on not more than 60 days’ notice. The investment management agreements pursuant to which our Investment Advisory Subsidiaries manage RICs must be renewed and approved by the RICs’ boards of trustees (including a majority of the independent trustees) annually. A significant majority of the trustees are independent. Consequently, the board of trustees of each RIC may not approve the investment management agreement each year, or may condition its approval on revised terms that are adverse to us.

Also, as required by the Investment Company Act, each investment advisory agreement with a RIC automatically terminates upon its assignment, although new investment advisory agreements may be approved by the RIC’s board of trustees and stockholders. The Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), also requires approval or consent of investment advisory agreements by clients in the event of an assignment of the agreement. An “assignment” for purposes of both the Investment Company Act and the Investment Advisers Act includes a sale of a controlling block of the voting stock of the investment adviser or its parent company, or a change in control of the investment adviser.

Changes in U.S. federal income or other tax laws or the interpretation of tax laws could affect sales of our products and profitability.

The annuities that we market generally provide the customer with certain federal income tax advantages. For example, federal income taxation on any increases in non-qualified annuity contract values (i.e. the “inside build-up”) is deferred until it is received by the customer. With other savings investments, such as certificates of deposit and taxable bonds, the increase in value is generally taxed each year as it is realized. Additionally, life insurance death benefits are generally exempt from income tax.

 

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From time to time, various tax law changes have been proposed that could have an adverse effect on our business, financial condition, results of operations and cash flows, including the elimination of all or a portion of the income tax advantages described above for annuities and life insurance. If legislation were enacted to eliminate the tax deferral for annuities, such a change would have an adverse effect on our ability to sell our annuities. Moreover, if the treatment of annuities was changed prospectively, and the tax-favored status of existing contracts was grandfathered, holders of existing contracts would be less likely to surrender or rollover their contracts, which could also adversely affect our business.

More generally, it is possible that U.S. federal income or other tax laws or the interpretation of tax laws will change, including as a result of possible tax legislation that may be proposed by the Biden Administration. It is difficult to predict whether and when there will be tax law changes having a material adverse effect on our business, financial condition, results of operations and cash flows.

We may not be able to mitigate the reserve strain associated with Regulation XXX and Guideline AXXX, potentially resulting in a negative impact on our capital position.

The model regulation of the NAIC entitled “Valuation of Life Insurance Policies,” commonly known as “Regulation XXX,” and supporting Guideline entitled “The Application of the Valuation of Life Insurance Policies,” commonly known as “Guideline AXXX,” require insurers to establish statutory reserves for certain term life insurance policies with long-term premium guarantees and for certain universal life policies with secondary guarantees that are consistent with the statutory reserves required for other individual life insurance policies with similar guarantees.

During 2014, the NAIC approved a new regulatory framework applicable to the use of captive insurers in connection with Regulation XXX and Guideline AXXX transactions. In December 2016, the NAIC adopted an update to AG 48 (“Updated AG 48”) and a model regulation (Term and Universal Life Insurance Reserve Financing Model Regulation) that contains the same substantive requirements as the Updated AG 48. The model regulation will replace AG 48 in a state upon the state’s adoption of the model regulation. Neither Michigan nor New York has adopted the model regulation to date, and Updated AG 48 will continue to apply to us until the model regulation is adopted. As a result of these regulatory changes, it will likely be difficult for us to establish new captive financing arrangements on a basis consistent with past practices. As a result of these restrictions on financing redundant reserves, the implementation of new captive structures in the future could be less capital-efficient, could lead to lower product returns or increased product pricing or could result in reduced sales of certain products.

As of year-end 2016, we completed a captive statutory reserve financing transaction covering substantially all of our existing Regulation XXX term life insurance business in conformity with Updated AG 48. As a result of such transaction, we were able to release approximately $300 million in Regulation XXX reserves. While we no longer write term life insurance business subject to Regulation XXX at this time, we may acquire Regulation XXX and Guideline AXXX business in the future. In this connection, we may not be successful in implementing reinsurance, capital management or captive structures to mitigate any excessive levels of reserves, as a result of market conditions or otherwise, if the negative impact on our capital position was to reach a level where we desired to take such actions.

It is unclear what additional actions and regulatory changes will result from the continued scrutiny of captive reinsurers and reform efforts by the NAIC and other regulatory bodies. The NAIC is evaluating changes to accounting rules regarding surplus notes with linked assets, a structure used in certain captive reserve financing transactions, and we are monitoring for any changes that could impact our statutory financial statements. If state insurance regulators determine to restrict our use of captive reinsurers, it could require us to increase statutory reserves, incur higher operating or tax costs or reduce sales. If we are unsuccessful or unable to finance these non-economic reserves, our business, financial condition, results of operations and cash flows could be adversely affected.

 

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We will be required to disclose in our periodic reports filed with the SEC specified activities engaged in by the Company or its “affiliates.”

The Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires companies subject to SEC reporting obligations to disclose in their periodic reports specified dealings or transactions involving individuals and entities targeted by certain Office of Foreign Assets Control (“OFAC”) sanctions engaged in by the reporting company or any of its affiliates during the period covered by the relevant periodic report. In some cases, companies are required to disclose these types of transactions even if they would otherwise be permissible under U.S. law. Reporting companies are required to separately file with the SEC a notice that such activities have been disclosed in the relevant periodic report, and the SEC is required to post this notice of disclosure on its website and send the report to the U.S. President and certain U.S. Congressional committees. The U.S. President thereafter is required to initiate an investigation and, within 180 days of initiating such an investigation, to determine whether fines, penalties or other reprimands should be imposed. Under the Exchange Act, we would be required to report if we or any of our “affiliates” knowingly engaged in certain specified activities in non-compliance with OFAC sanctions during the period covered by the report. Because the SEC defines the term “affiliate” broadly, it includes any entity controlled by us as well as any person or entity that controls us or is under common control with us. Because Prudential will own shares of our Class A common stock representing approximately 19.9% of the total voting power of our common stock following the Demerger, we may be required to disclose certain activities undertaken by Prudential and its affiliates involving individuals and entities targeted by OFAC sanctions. Disclosure of such activities, even if such activities are not subject to sanctions under applicable law, and any fines, penalties or other reprimands actually imposed on us or our affiliates as a result of these activities, could harm our reputation and have a negative impact on our business. The risks resulting from non-compliance or non-disclosure may be increased where uncertainty exists on the scope of sanctions, and where the complexity of specific cases is high.

We are subject to U.S. federal, state and other securities and state insurance laws and regulations which, among other things, require that we distribute certain of our products through a registered broker-dealer; failure to comply with those laws, including a failure to have a registered broker-dealer, or changes in those laws could have a material adverse effect on our operations and our profitability

Federal and state securities laws and regulations apply to insurance products that are also “securities,” including variable annuity contracts, to the separate accounts that issue them, and to certain fixed interest rate or index-linked contracts. Such laws and regulations require that we distribute these products through a broker-dealer that is registered with the SEC and certain state securities regulators and is a member of FINRA. Accordingly, our offering and selling of annuities, and in managing certain proprietary mutual funds associated with those products, are subject to extensive regulation under federal and state securities laws as well as FINRA rules. Costs related to compliance with these securities laws will be greater than costs for our unregistered products. Due to the increased operating and compliance costs, the profitability of issuing these products is uncertain.

Securities laws and regulations are primarily intended to ensure the integrity of the financial markets, to protect investors in the securities markets, and to protect investment advisory or brokerage clients. These laws and regulations generally grant regulatory and self-regulatory agencies broad rulemaking and enforcement powers, including the power to adopt new rules impacting new and/or existing products, regulate the issuance, sale and distribution of our products and limit or restrict the conduct of business for failure to comply with securities laws and regulations. As a result of Dodd-Frank, there have been a number of proposed or adopted changes to the laws and regulations that govern the conduct of our annuity business and the firms that distribute these products. The future impact of recently adopted revisions to laws and regulations, as well as revisions that are still in the proposal stage, on the way we conduct our business and the products we sell is unclear. Such impact could adversely affect our operations and profitability, including increasing the regulatory and compliance burden upon us, resulting in increased costs.

The 2008 global financial crisis and resulting recession led to significant changes in economic and financial markets and a prolonged period of low interest rates that have, in turn, materially altered the competitive

 

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landscape for the insurance industry. Our ability to react to rapidly changing market and economic conditions will depend on the continued efficacy of the contract features we have incorporated into our product design and our ability to work collaboratively with regulators. Changes in regulatory approval processes, rules and other dynamics in the regulatory process could adversely impact our ability to react to such changing conditions.

Changes to comply with new and potential laws or regulations which impose fiduciary or best interest standards in connection with the sale of our products could materially increase our costs, decrease our sales and result in a material adverse impact on our business, financial condition, results of operations and cash flows.

Regulators continue to propose and adopt fiduciary rules, best interest standards and other similar laws and regulations applicable to the sale of annuities. These rules, standards, laws and regulations generally require advisers providing investment recommendations to act in the client’s best interest or put the client’s interest ahead of their own interest. We face uncertainty regarding the adoption of these rules and regulations, including that the SEC, the DOL, and state insurance departments could adopt potentially conflicting or overlapping standards.

For example, the 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 ERISA Plans and 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. 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 Plan 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. Because we do not engage in direct distribution of retail products, including IRA products and retail annuities sold to ERISA plan participants and to IRA owners, 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 independent distribution partners, as approximately 62% of our annuity sales were purchased within IRAs or other qualified accounts (excluding employer-sponsored qualified plans) during 2020. 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. See “Business—Regulation—Federal Initiatives.”

On June 5, 2019, the SEC adopted a package of rules and interpretations designed to enhance the quality and transparency of the duties owned by broker-dealers to retail investors and to reaffirm, and in some cases clarify, certain aspects of an investment adviser’s fiduciary duty under the Investment Advisers Act of 1940, or the “Advisers Act.” Included in this package was the new Regulation Best Interest, which will require broker-dealers to act in the best interest of retail investors, without placing the interests of the broker-dealer ahead of the interests of the retail investor, when making recommendations regarding securities transactions or investment strategies. Broker-dealers were required to comply with the requirements of Regulation Best Interest beginning June 30, 2020.

Also on June 5, 2019, the SEC adopted an interpretation of the fiduciary duties owed by investment advisers. The interpretation addresses an investment adviser’s duties of care and loyalty under the Advisers Act. As described in the interpretation, in the view of the SEC, the duty of care requires an investment adviser to provide investment advice in the best interest of its client, based on the client’s objectives. Under the duty of loyalty, an investment adviser must eliminate or make full and fair disclosure of all conflicts of interest which might incline an investment adviser—consciously or unconsciously—to render advice which is not disinterested such that a client is able to provide informed consent to the conflict.

 

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On July 17, 2018, the NYSDFS adopted an amendment to its life insurance and annuity suitability regulation, Suitability and Best Interests in Life Insurance and Annuity Transactions, which incorporates a “best interest” standard for those licensed to sell life insurance and annuities in New York, which took effect on August 1, 2019 with respect to annuity contracts. Other states, for example Maryland, Nevada and New Jersey, have proposed laws or regulations that would impose fiduciary duties on certain investment advisers. The NAIC is also working on revising its Suitability in Annuity Transactions Model Regulation and this revision could include a best interest or similar standard.

Regulation Best Interest, as well as NYSDFS’s amended Suitability and Best Interests in Life Insurance and Annuity Transactions regulation and other potential fiduciary rules may change the way financial advisors, agents and financial institutions do business. These rules may impact the way in which our products are marketed and offered by our distribution partners, which could have an impact on customer demand, impact the margins we make on our products or increase compliance costs and burdens. For example, we may find it necessary to change sales representative and broker compensation, to limit the assistance or advice provided to owners of our annuities, to replace or engage additional distributors, or to otherwise change the manner in which we design, supervise and support sales of our annuities. Changes in the design of our annuities, including the delivery of “custom” products to certain distribution partners in response to the Fiduciary Advice Rule and other standard of care regulations could implicate other laws and regulations, including anti-discrimination laws that require all products to be offered to all investors. The application of anti-discrimination laws to our annuities could limit our ability to sell such products through certain distributors.

Regulation Best Interest, as well as NYSDFS’s amended Suitability and Best Interests in Life Insurance and Annuity Transactions regulation may further change the way broker-dealers sell securities, such as variable annuities, to customers. Such regulations may have a more expansive application than the Fiduciary Advice Rule (which is applicable to IRAs and ERISA-qualified plans only), applying to non-qualified plans as well. For example, Regulation Best Interest would apply to broker-dealer sales of securities such as variable annuities to all retail investors. Moreover, we believe the rule would impact sales of other annuities that are not securities even if it is limited in application to sales of securities such as variable annuities because it could be difficult for distributors to establish separate sales processes for annuities that are classified as securities compared to those that are not.

These or other actions by the SEC, state insurance departments or other regulators to impose a fiduciary or best interest standard on insurance market participants may result in differing and potentially conflicting laws and regulations. While it remains uncertain what impact these rules and potential rules would have on our annuities and other businesses, we could experience a material decline in sales of products, such as variable annuities and fixed index annuities. Regulators in enforcement actions and plaintiffs’ attorneys in litigation could also find it easier to attempt to extend fiduciary status to, or to claim fiduciary or contractual breach by, advisors who would not be deemed fiduciaries under current regulations. Such laws and regulations could have a material adverse impact on the industry and could have a material adverse impact on our business.

Risks Relating to the Demerger and our Separation from Prudential

The conditions to the completion of the Demerger may not be satisfied or waived.

The Demerger is subject to the satisfaction or waiver of a number of conditions, including the approval of the Demerger by Prudential Shareholders at the Prudential General Meeting, the formal approval of the Demerger by the Prudential Board and the receipt of all necessary regulatory approvals, as set out in the Demerger Agreement. There can be no assurance that any or all of these conditions will be satisfied or, where relevant, waived. If any condition is not satisfied or waived, the Demerger will not be completed. Therefore, we cannot assure that we will complete the Demerger on the terms or on the timeline that Prudential announced, if at all. Failure to complete the Demerger would result in a failure to realize the potential benefits of the Demerger for the Company and Prudential.

 

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Following the completion of the Demerger, the Company may fail to realize any or all of the anticipated benefits of the Demerger.

The realization of the anticipated benefits of the Demerger is subject to a number of factors, including the Company’s ability to access capital markets, to maintain credit ratings, to demonstrate financial resilience as a separate company. There are also many factors that are outside the control of the Company and Prudential, including the performance of financial markets, consumer behavior, and regulatory, legislative, and tax changes. There can be no guarantee that the anticipated benefits of the Demerger will be realized in full or in part, or as to the timing of when any such benefits may be realized.

Fulfilling JFI’s obligations incident to being a separate public company, including compliance with the Exchange Act and the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, will be expensive and time-consuming and may increase risks associated with ongoing operations. Further, any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.

In preparation for becoming a separate public company, we will expend significant management effort and resources, which may distract management from effectively carrying on our ongoing operations. Further, following the effective date of registration statement of which this information statement forms a part, we will be subject to the reporting, accounting and corporate governance requirements of the NYSE, the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and Dodd-Frank that apply to issuers of listed equity, which will impose certain new compliance requirements, costs and obligations upon us. The changes necessitated by being a publicly-listed company require a significant commitment of additional resources and management oversight which will increase our operating costs. Further, to comply with the requirements of being a public company, we will need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff.

The expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we are required, among other things, to define and expand the roles and the duties of our board of directors and its committees and institute more comprehensive compliance and investor relations functions. Failure to comply with the requirements of being a public company could potentially subject us to sanctions or investigations by the SEC, NYSE or other regulatory authorities.

Prudential may not complete the ultimate separation of our business as planned and may retain a significant ownership stake in JFI for a period of time.

After the completion of the Demerger, Prudential will hold shares of JFI’s outstanding Class A common stock representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock. Subject to market conditions, Prudential intends to monetize a portion of its retained shares of Class A common stock for cash proceeds within 12 months following the completion of the Demerger, such that Prudential expects to own less than 10% of the total combined voting power of JFI’s common stock at the end of such period. There can be no assurance regarding the method by which Prudential will dispose of its interest in us or the timing thereof.

The disposition by Prudential of its remaining ownership interest in us may be subject to various conditions, including receipt of any necessary regulatory and other approvals, the existence of satisfactory market conditions, and the confirmation of credit and financial strength ratings. These conditions may not be satisfied or Prudential may decide for any other reason not to consummate the separation of our business and instead retain a significant ownership interest in us for a period of time. Satisfying the conditions relating to such separation may require actions that Prudential has not anticipated.

 

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Following the completion of the Demerger, Prudential and Athene will have influence over us as large stockholders and could pursue business interests or exercise their voting power as stockholders in ways that are detrimental to us or our other stockholders. 

Following the completion of the Demerger, Prudential and Athene, respectively, will own approximately 19.9% and 9.9%, of the total combined voting power of JFI’s common stock. As large stockholders, Prudential and Athene will be able to influence matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions we may undertake. The interests of Prudential or Athene could conflict with our interests or the interest of our other stockholders. Prudential, Athene and their respective affiliates could pursue business interests or acquisition opportunities or exercise their voting power as stockholders of our company in ways that are detrimental to us or our other stockholders but beneficial to themselves or to other companies in which they invest or with which they have a material relationship. Conflicts of interest could also arise between Athene and us with respect to the Athene Reinsurance Transaction or future transactions we may engage in with Athene. In addition, because of our relationships with Prudential and Athene, adverse publicity, increased regulatory scrutiny or investigations by regulators or law enforcement agencies involving Prudential or Athene could have a negative impact on us.

Following the completion of the Demerger, we could fail to replicate or replace certain operational support services provided by Prudential and our costs for procuring such services could increase; and, in connection with preparing for the Demerger and our operation as a separate, publicly-traded company, we expect to incur one-time and recurring expenses.

We have historically received certain operational support services from Prudential and have provided certain services to Prudential, including information security services pursuant to an intra-group masters services agreement. We currently expect that such intra-group master services agreement will be terminated in connection with the Demerger as part of the complete operational separation of Prudential’s and our businesses. However, if certain services are still necessary following the completion of the Demerger because operational separation is not completed at that time, we expect that these services will be provided via an amendment to the intra-group master services agreement. We will work to replicate or replace any services we will continue to need in the operation of our business that are provided currently by Prudential or its affiliates. We cannot assure you that we will be able to obtain the services at the same or better levels or at the same or lower costs directly from third-party providers. As a result, our costs of procuring these services or comparable replacement services could increase, and the cessation of such services could result in service interruptions or divert management attention from other aspects of our operations.

In connection with preparing for the Demerger and our operation as a separate, publicly-traded company following the completion of the Demerger, we expect to incur one-time and recurring expenses. We estimate that the aggregate amount of these one-time expenses will be approximately $65 million, of which approximately $18 million was incurred in 2020 and the remainder is expected to be incurred in 2021. We estimate that our incremental recurring expenses relating to operating on a stand-alone basis will be between approximately $25 million and $30 million. These expenses primarily relate to information security, finance, risk management, human resources, corporate communications, public relations and other support services. These expenses, any recurring expenses and any additional one-time expenses we incur could be material.

Prudential and its affiliates provide a significant amount of PPM’s assets under management, and if they choose to terminate their investment advisory agreements it could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Prudential and its affiliates are significant clients of PPM. Prudential and its affiliates (and former affiliates) other than us represented approximately $54 billion of assets under management or 51% of PPM’s total assets under management as of December 31, 2020 and approximately 46% of PPM’s net revenues for the year ended December 31, 2020. Since December 31, 2020, PPM’s assets under management have decreased primarily due to withdrawals by Prudential’s former UK affiliate. PPM’s assets under management at the time of the Demerger are anticipated to be approximately $80 billion. PPM’s investment management agreements with Prudential and

 

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its affiliates are terminable at any time or on short notice by either party, and Prudential and its affiliates are not under any obligation to maintain any level of assets under management with PPM. If Prudential and its affiliates were to terminate their investment management agreements with PPM, it could cause disruption in the operations and investment advisory capabilities of PPM, including as a result of the loss of investment management personnel, which could in turn result in a material adverse effect on our business, financial condition, results of operations and cash flows.

Mutual indemnities have been given under the Demerger Agreement by Prudential in favor of the Company and by the Company in favor of the Prudential Group. Should any substantial amounts be payable by Prudential or the Company pursuant to such indemnities, this could have a material adverse effect on the financial condition and/or results of the indemnifying party.

We have entered into the Demerger Agreement with Prudential in connection with the Demerger, which governs the post-Demerger obligations of the Prudential Group and the Company and contains, among other provisions, mutual indemnities under which Prudential indemnifies us against liabilities arising in respect of the Prudential Group (other than the Company’s business) and the Company indemnifies the Prudential Group against liabilities arising in respect of the business carried on us. These indemnities are customary for agreements of this type. If any amount payable under the indemnities were substantial, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Following completion of the Demerger, Prudential will continue to hold shares of Class A common stock but cease to have any control over the Company.

Following completion of the Demerger, Prudential will hold shares of Class A common stock representing approximately 19.9% of the combined voting power of JFI’s common stock and will not have any board nomination or special governance rights. In connection with disposition of control filings with DIFS and NYSDFS as part of the Demerger process, Prudential has also agreed to certain governance restrictions relating to its ongoing ownership of shares of our common stock. See “Certain Relationships and Related Party Transactions—Relationship with Prudential Following the Demerger—Certain Insurance Regulatory Governance Restrictions on Prudential.” As a result, we will no longer be controlled by Prudential, and you will be relying on our management regarding strategic, financial and operational decisions. We may conduct our business in a manner that differs from the manner in which Prudential might have conducted the business had it retained control, and we could be subject to adverse publicity, increased regulatory scrutiny or investigations by regulators or law enforcement agencies.

Risks Relating to Our Class A Common Stock

The market price of our Class A common stock could be volatile and could decline after the completion of the Demerger.

There is currently no public trading market for our Class A common stock, and an active market for our Class A common stock may not develop or be sustained after the completion of the Demerger. We expect to apply to list our Class A common stock on the NYSE. We anticipate that on or shortly before            , 2021, the Record Date for Prudential Shareholders on the UK Register, trading of shares of our Class A common stock will begin on a “when-issued” basis and that trading will continue up to and including            , 2021, the Distribution Date for Prudential ADRs. We anticipate “regular-way” trading of our Class A common stock will begin on            , 2021, the first trading day after the Distribution Date for Prudential ADRs. We cannot assure you that an active public market for our Class A common stock will develop after the Demerger or, if one does develop, that it will be sustained. In the absence of an active public trading market, you may not be able to sell your shares at an attractive price, or at all. An inactive market could also impair our ability to raise capital to continue to fund operations by selling shares, limit our ability to motivate our employees and sales representatives through equity incentive awards, and impair our ability to make strategic investments by using our shares as consideration. In

 

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addition, the market price of our Class A common stock could fluctuate significantly. Among the factors that could affect our stock price are:

 

   

industry, regulatory or general market conditions;

 

   

domestic and international economic factors unrelated to our performance;

 

   

changes in customers’ preferences;

 

   

changes in applicable laws, new regulatory pronouncements and changes in regulatory guidelines affecting us;

 

   

lawsuits, enforcement actions and other claims by third parties or governmental authorities;

 

   

adverse publicity related to us or another industry participant;

 

   

actual or anticipated fluctuations in our quarterly operating results;

 

   

changes in securities analysts’ estimates of our financial performance or lack of research coverage and reports by industry analysts;

 

   

action by institutional stockholders or other large stockholders (including Prudential), including future sales of our Class A common stock;

 

   

failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices;

 

   

announcements by us of significant impairment charges;

 

   

speculation in the press or investment community;

 

   

investor perception of us and our industry;

 

   

changes in market valuations or earnings of similar companies;

 

   

announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships;

 

   

war, terrorist acts and epidemic or pandemic disease;

 

   

any future sales of our Class A common stock or other securities;

 

   

conversions of shares of Class B common stock into shares of Class A common stock in the future;

 

   

additions or departures of key personnel; and

 

   

misconduct or other improper actions of our employees.

In particular, we cannot assure you that you will be able to resell your shares after the completion of the Demerger. Stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies. These broad market fluctuations could adversely affect the trading price of our Class A common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Furthermore, our business profile and market capitalization may not fit the investment objectives of some Prudential Shareholders and, as a result, these Prudential Shareholders may sell our shares after the completion of the Demerger, which could cause the price of our Class A common stock to decline. See “—Future sales of shares by our existing stockholders could cause our stock price to decline.” Low trading volume for our stock, which may occur if an active trading market does not develop, among other reasons, would amplify the effect of the above factors on our stock price volatility.

 

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Future sales of shares by our existing stockholders could cause our stock price to decline.

Sales of substantial amounts of our Class A common stock in the public market following the completion of the Demerger, or the perception that these sales could occur, could cause the market price of our Class A common stock to decline. These sales, or the possibility that these sales could occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Based on            Prudential ordinary shares issued and outstanding as of                 , 2021, upon the completion of the Demerger, we will have approximately                issued and outstanding shares of Class A common stock and approximately                 issued and outstanding shares of Class B common stock. In addition, shares of Class B common stock automatically convert into shares of Class A common stock upon the occurrence of certain events. See “Description of Capital Stock—Common Stock.” All of the shares of Class A common stock issued and outstanding following the completion of the Demerger will be immediately tradable without restriction under the Securities Act of 1933, as amended, or the “Securities Act,” except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act (“Rule 144”).

In addition, after the completion of the Demerger, Prudential will hold shares of JFI’s outstanding Class A common stock representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock. Subject to market conditions, Prudential intends to monetize a portion of its retained shares of Class A common stock for cash proceeds within 12 months following the completion of the Demerger, such that Prudential expects to own less than 10% of the total combined voting power of JFI’s common stock at the end of such period. We will agree that, upon the request of Prudential, we will use our reasonable best efforts to effect a registration under applicable federal and state securities laws of any shares of Class A common stock retained by Prudential to the extent that Prudential wishes to sell the shares of Class A common stock it retains.

In the future, JFI may issue additional shares of Class A common stock or other equity or debt securities convertible into or exercisable or exchangeable for shares of Class A common stock in connection with a financing, strategic investment, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our Class A common stock to decline.

Upon the completion of the Demerger, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of Class A common stock to be issued under the Jackson Financial Inc. 2021 Omnibus Incentive Plan, which we expect to be adopted prior to the completion of the Demerger. As a result, all shares of Class A common stock acquired upon exercise of stock options granted under our plans will also be freely tradable under the Securities Act, unless purchased by our affiliates. In addition,                  shares of Class A common stock are reserved for future issuances under the equity incentive plan adopted in connection with the Demerger.

Index funds that hold Prudential ordinary shares likely will be required to sell their shares of Class A common stock received in the Demerger to the extent we are not included in the relevant index. In addition, a significant percentage of Prudential Shareholders are not residents in the United States. Many of these shareholders may sell their shares immediately following the Demerger. The sale of significant amounts of our Class A common stock for the above or other reasons, or the perception that such sales will occur, may cause the price of our Class A common stock to decline.

Our ability or plan to pay dividends on our common stock or to repurchase our common stock at the desired level could be limited or could change.

Any declaration of cash dividends, stock repurchases or other returns of capital will be at the discretion of the JFI board of directors and will depend on many factors, including our financial condition, earnings, liquidity and capital requirements, regulatory constraints, level of indebtedness, contractual restrictions with respect to payment of cash dividends or repurchasing stock, restrictions imposed by Delaware law, general business conditions, a change in strategy and any other factors that the JFI board of directors deems relevant in making

 

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such a determination. Therefore, there can be no assurance that we will pay any cash dividends, make stock repurchases or make other distributions or returns on our common stock, or as to the amount of any such cash dividends, stock repurchases, distributions or returns of capital. See “Dividend Policy.”

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have, and may never obtain, research coverage for our Class A common stock. If there is no research coverage of our Class A common stock, the trading price for our Class A common stock could be negatively impacted. In the event we obtain research coverage for our Class A common stock, if one or more of the analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of the analysts ceases coverage of our Class A common stock or fails to publish reports on us regularly, demand for our Class A common stock could decrease, which could cause our Class A common stock price or trading volume to decline.

Future offerings of debt or equity securities which would rank senior to our Class A common stock could adversely affect the market price of our Class A common stock.

In the future, we may decide to issue senior or subordinated debt securities or preferred stock or other equity securities that rank senior to our Class A common stock. Indentures or other instruments governing such securities may include covenants restricting our operating flexibility and ability to pay dividends and make other distributions to our stockholders. Additionally, any convertible or exchangeable securities that we issue in the future could have rights, preferences and privileges more favorable than those of our Class A common stock and could result in dilution to owners of our Class A common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our Class A common stock will bear the risk of our future offerings, reducing the market price of our Class A common stock and diluting the value of their Class A common stock holdings in us.

Anti-takeover provisions in our certificate of incorporation and bylaws could discourage, delay or prevent a change of control of our company and could affect the trading price of our Class A common stock.

Our certificate of incorporation and our bylaws will include a number of provisions that could discourage, delay or prevent a change in our management or control over us that stockholders consider favorable. For example, our certificate of incorporation and bylaws collectively will:

 

   

authorize the issuance of shares of Class A common stock to create voting impediments or to frustrate persons seeking to effect a takeover or gain control;

 

   

authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;

 

   

provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office;

 

   

prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders; and

 

   

establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders.

These provisions could prevent our stockholders from receiving the benefit from any premium to the market price of our Class A common stock offered by a bidder in a takeover context. Even in the absence of a takeover

 

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attempt, the existence of these provisions could adversely affect the prevailing market price of our Class A common stock if the provisions are viewed as discouraging takeover attempts in the future. See “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws.”

Our certificate of incorporation and bylaws could also make it difficult for stockholders to replace or remove our management. Furthermore, the existence of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of Class A common stock. These provisions could facilitate management entrenchment that could delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders.

Applicable insurance laws could make it difficult to effect a change of control of our company.

The insurance laws and regulations of the various states in which our insurance subsidiaries are organized could delay or impede a business combination involving us. State insurance laws prohibit an entity from acquiring control of an insurance company without the prior approval of the domestic insurance regulator. Under most states’ statutes, an entity is presumed to have control of an insurance company if it owns, directly or indirectly, 10% or more of the voting stock of that insurance company or its parent company. These regulatory restrictions could delay, deter or prevent a potential merger or sale of our company, even if our board of directors decides that it is in the best interests of stockholders for us to merge or be sold. These restrictions also could delay sales by us or acquisitions by third parties of our insurance subsidiaries.

Our certificate of incorporation will include provisions limiting the personal liability of our directors for breaches of fiduciary duty under the Delaware General Corporation Law.

Our certificate of incorporation will contain provisions permitted under the General Corporation Law of the State of Delaware (“DGCL”) relating to the liability of directors. These provisions will eliminate a director’s personal liability to the fullest extent permitted by the DGCL for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving:

 

   

any breach of the director’s duty of loyalty;

 

   

acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;

 

   

under Section 174 of the DGCL (unlawful dividends); or

 

   

any transaction from which the director derives an improper personal benefit.

The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an action for monetary damages against a director unless the stockholder is able to demonstrate a basis for liability for which indemnification is not available under the DGCL. These provisions, however, should not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s fiduciary duty. These provisions will not alter a director’s liability under federal securities laws. The inclusion of this provision in our certificate of incorporation could discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited us and our stockholders.

Our certificate of incorporation will designate the Court of Chancery of the State of Delaware or the federal courts, as applicable, as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or stockholders.

Our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our current or former

 

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directors, officers, other employees, agents or stockholders, (iii) any action asserting a claim arising out of or under the DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware (including, without limitation, any action asserting a claim arising out of or pursuant to our certificate of incorporation or our bylaws) or (iv) any action asserting a claim that is governed by the internal affairs doctrine. Unless we consent to an alternative forum, the federal district courts of the United States of America will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, the Exchange Act, and the rules and regulations thereunder. Neither this provision nor the exclusive forum provision will mean that stockholders have waived our compliance with federal securities laws and the rules and regulations thereunder. By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our certificate of incorporation related to choice of forum. The choice of forum provisions in our certificate of incorporation will limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our current or former directors, officers, other employees, agents or stockholders, which could discourage lawsuits with respect to such claims. Additionally, a court could determine that the exclusive forum provision is unenforceable. If a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable to, or unenforceable in respect of, one or more specified types of actions and proceedings, we could incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition, results of operations and cash flows.

Our dual class structure could depress the trading price of our Class A common stock.

JFI has two classes of common stock: Class A common stock and Class B common stock. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to one-tenth of one vote per share. All of our Class B common stock is owned by Athene Life Re Ltd. for insurance regulatory purposes. Our dual class structure could result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with dual or multiple class share structures in certain of their indexes. S&P Dow Jones and FTSE Russell have announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500. These changes exclude companies with multiple classes of shares of common stock from being added to these indices. In addition, several stockholder advisory firms have announced their opposition to the use of dual or multiple class structures. As a result, the dual class structure of our common stock could prevent the inclusion of our Class A common stock in these indices and may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A common stock. Any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.

Furthermore, the conversion of each share of Class B common stock into one share of Class A common stock will result in a greater number of total votes attributed to our shares of common stock, and will therefore dilute the voting power of our currently outstanding shares of Class A common stock. Shares of our Class A common stock are entitled to one vote per share and shares of Class B common stock are entitled to one-tenth of one vote per share. Each outstanding share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer and upon being held by a stockholder that beneficially owns less than 9.9% of the total combined voting power of our common stock, except for certain exceptions and permitted transfers described in our certificate of incorporation.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This information statement contains forward-looking statements which can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates,” “is designed,” “objectives,” “initiatives” or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this information statement and include, without limitation, statements regarding our intentions, beliefs, assumptions or current plans and expectations concerning, among other things, our expectations with respect to distributing capital to our stockholders; financial position; results of operations; cash flows; financial goals and targets; prospects; growth strategies or expectations; laws and regulations; customer retention; the outcome (by judgment or settlement) and costs of legal, administrative or regulatory proceedings, investigations or inspections, including, without limitation, collective, representative or class action litigation; and the impact of prevailing capital markets and economic conditions.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this information statement. In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this information statement, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks, uncertainties and assumptions discussed in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business—Financial Goals” in this information statement, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:

 

   

general conditions in the global capital markets and the economy;

 

   

adverse capital and credit market conditions, including volatility in interest rates and credit spreads, prolonged periods of low interest rates, volatile equity markets and decreased liquidity and credit capacity;

 

   

adverse impacts on our results of operations and capitalization as a result of optional guarantee benefits within certain of our annuities;

 

   

unavailability of hedging instruments and inadequacy of our hedging and reinsurance programs to protect us against the full extent of the exposure or losses we seek to mitigate;

 

   

variance in the performance of our hedge assets and customer funds, also referred to as basis risk;

 

   

disruptions in our business functions as a result of adverse outcomes from our operational risks and those of our material outsourcing partners;

 

   

operational failures, failure of our information technology systems, and the failure to protect the confidentiality of customer information or proprietary business information;

 

   

inability to recruit, motivate and retain experienced and productive employees;

 

   

misconduct by our employees or business partners;

 

   

difficulty in marketing and distributing products;

 

   

JFI’s dependence on the ability of its subsidiaries to transfer funds to meet JFI’s obligations and liquidity needs;

 

   

risks arising from acquisitions or other strategic transactions;

 

   

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;

 

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incurrence of indebtedness in connection with the Recapitalization and the degree to which we will be leveraged following the Recapitalization and the Demerger;

 

   

deterioration of the credit quality of the securities and loans in our investment portfolio;

 

   

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;

 

   

our counterparties’ requirements to pledge collateral or make payments related to declines in estimated fair value of specified assets and changes in the actual or perceived soundness or condition of other financial institutions and market participants;

 

   

inadequate reserves due to differences between our actual experience and management’s estimates and assumptions;

 

   

significant deviations from our assumptions regarding the probabilities that our annuity contracts will remain in force from one period to the next;

 

   

changes in the levels of amortization of DAC;

 

   

changes in accounting standards;

 

   

models that rely on a number of estimates, assumptions, sensitivities and projections that are inherently uncertain and which may contain misjudgments and errors;

 

   

a downgrade in our financial strength or credit ratings;

 

   

competition from other insurance companies, banks, asset managers and other financial institutions;

 

   

failure of our risk management policies and procedures to adequately identify, monitor and manage risks, which could leave us exposed to unidentified or unanticipated risks;

 

   

changes in U.S. federal income or other tax laws or the interpretation of tax laws;

 

   

changes in U.S. federal, state and other securities and state insurance laws and regulations;

 

   

adverse outcomes of legal or regulatory actions; and

 

   

the timing of the Demerger, including whether the conditions to the Demerger will be met, and the failure to realize any or all of the anticipated benefits of the Demerger.

Other risks, uncertainties and factors, including those discussed in “Risk Factors,” could cause our actual results to differ materially from those projected in any forward-looking statements we make. You should read carefully the factors described in “Risk Factors” to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.

You should read this information statement completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this information statement are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this information statement, and we do not undertake any obligation to update or revise any forward-looking statements to reflect the occurrence of events, unanticipated or otherwise, other than as may be required by law.

 

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THE DEMERGER

Background and Reasons for the Demerger

As discussed in more detail in the Prudential Circular, Prudential previously announced its intention to separate the Company from the Prudential Group. The Prudential Board has concluded that the Prudential Group should focus exclusively on the opportunities offered by its Asia and Africa operations. The Demerger will result in two separate, publicly-traded companies. The Demerger is designed to allow the Prudential Group and the Company to pursue their distinct products, geographic markets and strategies, tailor their risk and capital management policies accordingly, and enhance the efficiency of their respective operating and reporting structures. The Demerger will also allow Prudential shareholders to determine whether to continue to participate in both businesses, or adjust their exposure to each business over time.

The separation of the Company by way of a distribution of JFI’s Class A common stock is designed to allow the Prudential Group to execute the separation of the Prudential Group and the Company on a more certain and accelerated basis relative to a JFI initial public offering followed by future sell-downs over time, The Demerger will also permit Prudential Shareholders to make their own investment decisions going forward as to whether or not they wish to retain their exposure to the Company, independent of their exposure to the Prudential Group.

Following the Demerger, Prudential will hold shares of JFI’s Class A common stock representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock. There will be no special governance rights related to Prudential’s retained equity interest, and Prudential intends to classify the retained equity interest as a financial investment. Subject to market conditions, Prudential intends to monetize a portion of its retained shares of Class A common stock for cash proceeds within 12 months following the completion of the Demerger, such that Prudential expects to own less than 10% of the total combined voting power of JFI’s common stock at the end of such period.

When and How You Will Receive Class A Common Stock

Prudential will distribute to its shareholders pro rata one share of JFI’s Class A common stock for every                      Prudential ordinary shares issued and outstanding as of the Record Date, which is expected to be                    UK time on            , 2021 for Prudential Shareholders on the UK Register and Prudential ADR Holders and                    Hong Kong time on            , 2021 for Prudential Shareholders on the Hong Kong Register.

Equiniti Trust Company will serve as transfer agent and registrar for our Class A common stock following the completion of the Demerger.

If you own Prudential ordinary shares on the Record Date, the shares of Class A common stock that you are entitled to receive in the Demerger will be issued to your account as follows:

 

   

Certificated shareholders. If you are a certificated shareholder (meaning you hold Prudential share certificates), it is expected that you will be eligible for the Jackson Nominee Service if your address on the UK register is in the UK. Eligible CSN Holders will receive shares of Class A common stock through the Jackson Nominee Service by default unless a valid Form of Election is returned opting out of this service. See “—Jackson Nominee Service.” If you are not eligible for the Jackson Nominee Service or you opt out of the service, our transfer agent will credit the whole shares of Class A common stock you receive in the Demerger by way of direct registration in book-entry form under the Direct Registration System (the “DRS”) to your DRS book-entry account on or shortly after the applicable Distribution Date. See “—Direct Registration System.”

 

   

Prudential CREST shareholders: If you own your Prudential ordinary shares in uncertificated form through CREST (directly or through a broker or other nominee with a CREST account) immediately prior to the Record Date (“Prudential CREST Shareholders”) you will be issued a number of CDIs representing Class A common stock (a “Jackson CDI”) equivalent to the number of shares of Class A

 

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common stock you would have been entitled to receive as a certificated shareholder. One Jackson CDI will represent one share of Class A common stock. The Jackson CDIs will reflect the same economic rights as are attached to shares of Class A common stock. However, while the holders of Jackson CDIs will have an interest in the underlying shares of Class A common stock, they will not be registered holders of the shares of Class A common stock. The CREST depository will hold the beneficial interests in the shares of Class A common stock which are represented by the Jackson CDIs on bare trust for the Prudential CREST Shareholders. The CREST depository will be instructed to credit the appropriate stock account in CREST of each Prudential CREST Shareholder with such Prudential CREST Shareholder’s entitlement to Jackson CDIs representing the shares of Class A common stock promptly after                 , 2021. The stock account concerned will be an account under the same participant ID and member account ID under which the relevant Prudential CREST Shareholder holds the relevant Prudential ordinary shares.

 

   

Shareholders in the Prudential Corporate Sponsored Nominee: If you own your Prudential ordinary shares beneficially through the Prudential Corporate Sponsored Nominee, it is expected that you will be eligible for the Jackson Nominee Service and, as a result, you will receive shares of Class A common stock through the Jackson Nominee Service by default, without any option to opt out, in accordance with the terms and conditions of the Prudential Corporate Sponsored Nominee. See “—Jackson Nominee Service.”

If you hold Prudential ordinary shares on the Record Date and decide to sell them on or before the applicable Distribution Date, you will sell your Prudential ordinary shares without your entitlement to our Class A common stock. If you decide to sell before the Record Date, you should discuss with your bank, broker or other nominee how this may affect your entitlement to the Class A common stock. See “—Trading Prior to the Distribution Date” for more information.

Prudential Shareholders are being asked to approve the Demerger at the Prudential General Meeting. The Demerger qualifies as a Class 1 transaction under UK Listing Rules and so requires the approval of Prudential Shareholders at the Prudential General Meeting. In connection with the Prudential General Meeting, Prudential is separately making available to its shareholders the Prudential Circular. The Prudential Circular will contain a form of proxy and describe the procedures for voting the Prudential ordinary shares and other details regarding the Prudential General Meeting.

We are not asking you to surrender any of your Prudential ordinary shares for shares of JFI’s Class A common stock. The number of outstanding Prudential ordinary shares will not change as a result of the Demerger.

Jackson Nominee Service

The Jackson Nominee Service is a corporate sponsored nominee service provided by Equiniti Financial Services Limited which will enable Eligible CSN Shareholders to hold their entitlement to Class A common stock as a result of the Demerger in the form of CREST Depository Interests (“CDIs”). This service is being offered to Eligible CSN Shareholders to assist certain shareholders who may face logistical or practical difficulties in holding shares listed on a U.S. exchange by way of direct registration in book-entry form.

The Jackson Nominee Service provides a convenient way of holding Class A common stock for Eligible CSN Shareholders. Individuals’ names will not appear on JFI’s stockholder register. Instead, the CDIs representing the Class A common stock will be held on behalf of those individuals in the name of Equiniti Corporate Nominees Limited. Stockholders holding shares of Class A common stock in the Jackson Nominee Service will have similar rights to those stockholders who hold their Class A common stock by way of direct registration statement. Share dealing services will be available to stockholders holding shares of Class A common stock via the Jackson Nominee Service once they have received their shareholder reference which will be provided on their opening statement. This will be posted to them within 10 business days of                 , 2021, the Distribution Date for Prudential Shareholders on the UK Register.

These services are provided by Equiniti Financial Services Limited, which is authorized and regulated by the FCA. For more information, see the terms and conditions of the Jackson Nominee Service sent to Prudential

 

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Shareholders with the UK Circular. The Jackson Nominee Service will only be available to Eligible CSN Shareholders. Following the distribution of Class A common stock pursuant to the Demerger, the Jackson Nominee Service will not be open to new stockholders of JFI, except through transfers within the Jackson Nominee Service.

Direct Registration System

Registration in book-entry form refers to a method of recording share ownership where no physical stock certificates are issued to shareholders, as is the case in the Demerger. The transfer agent will keep a record of your shares of Class A common stock on our stock register. You will be able to access information regarding your DRS account holding the Class A common stock at EQ Shareowner Services using the following website: shareowneronline.com or via our transfer agent’s interactive voice response system at                 . Promptly after the applicable Distribution Date, the transfer agent and registrar will mail to you a DRS account statement indicating the number of whole shares of Class A common stock that have been registered in book-entry form under the DRS in your name.

Under the DRS, you will be able to request that the transfer agent sell your shares of Class A common stock. Such a sale would be at your expense. If you will be receiving whole shares of Class A common stock in the Demerger, you will receive a description of the DRS, including how such a sale may be requested and accomplished by the transfer agent, together with the DRS account statement described above.

Number of Shares You Will Receive

On the Distribution Date, you will receive one share of Class A common stock for every                      Prudential ordinary shares you owned as of the Record Date, which is expected to be                    UK time on            , 2021 for Prudential Shareholders on the UK Register and Prudential ADR Holders and                    Hong Kong time on            , 2021 for Prudential Shareholders on the Hong Kong Register.

Treatment of Fractional Shares

Prudential will not distribute fractional shares of our Class A common stock in connection with the Demerger. Instead, the transfer agent will aggregate all fractional shares into whole shares and sell, or cause to be sold, the whole shares in the open market at prevailing market prices on behalf of Prudential Shareholders who would otherwise have been entitled to receive fractional shares. The transfer agent will then distribute the aggregate cash proceeds of the sales, in U.S. dollars or, after exchange at the prevailing market rate, GBP Sterling for Shareholders with a UK or EEA address on the UK Register, Hong Kong Dollars for Hong Kong Shareholders and Singapore dollars for Singapore Holders pro rata to these holders, net of applicable withholding taxes. We anticipate that the transfer agent will sell, or cause to be sold, these aggregated fractional shares commencing on the first trading day after the Distribution Date for Prudential ADRs. The transfer agent is not, and any broker-dealer used by the transfer agent will not be, an affiliate of either Prudential or us. Prudential Shareholders will not be charged any foreign currency exchange fees, which fees will be paid by Prudential on behalf of the Prudential Shareholders.

Prudential will send to each registered holder of Prudential ordinary shares entitled to fractional shares a check in the cash amount deliverable in lieu of the fractional shares, net of applicable withholding taxes, to which that holder would have otherwise been entitled in the Demerger promptly following the Distribution Date for Prudential ADRs. If you hold your shares in CREST in uncertificated form through a bank, broker or other nominee, settlement of your pro rata share of the aggregate net cash proceeds of the sales will be effected through CREST by the creation of an assured payment obligation in favor of the appropriate CREST account through which you hold such uncertificated shares. No interest will be paid on any cash you receive in lieu of fractional shares. The cash you receive in lieu of fractional shares may be taxable to you. See “Certain Material Tax Considerations” for more information.

 

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Overview of the Share Sale Option

All Qualifying Shareholders will have the same entitlement to shares of Class A common stock pursuant to the Demerger. However, the Share Sale Option will be available to all Small Shareholders on equal terms and conditions, and will allow them to elect to have the shares of Class A common stock to which they will be entitled upon completion of the Demerger sold on their behalf and the cash proceeds, net of applicable withholding taxes, paid to them instead. The sale will be conducted by an independent broker and that broker will be entitled to charge no more than customary brokerage fees, which fees will be paid by Prudential on behalf of Small Shareholders.

The shares of Class A common stock of those Small Shareholders who make such an election will be transferred to and sold by the Sale Agent. It is expected that the Sale Agent will have until             , 2021, the date that is 60 days from the Distribution Date for Prudential Shareholders on the UK Register, to make the sales for participating Small Shareholders. The sale proceeds from the sale of shares of Class A common stock under the Share Sale Option will be pooled together and the amount of money due to each participating Small Shareholder will be calculated on an averaged basis so that all participating Small Shareholders will receive the same price per share of Class A common stock, subject to rounding.

It is expected that a check for the sale proceeds, in U.S. dollars or, after exchange at the prevailing market rate, GBP Sterling for Shareholders with an address in the UK or EEA on the UK Register, Hong Kong Dollars for Hong Kong Shareholders and Singapore dollars for Singapore Holders, net of applicable withholding taxes, will be mailed to you at your own risk or, for Prudential Shareholders with a UK or EEA address on the UK register, BACS payment will be made to the mandated bank account if registered with Equiniti Limited for the payment of dividends by no later than             , 2021, or a direct registration statement, or Jackson Nominee Service statement, in respect of shares of Class A common stock will be mailed at your own risk by             , 2021, depending on your election. Prudential Shareholders will not be charged any foreign currency exchange fees, which fees will be paid by Prudential on behalf of the Prudential Shareholders.

Small Shareholders will receive a Form of Election pursuant to which they may elect to participate in the Share Sale Option. Small Shareholders should complete, sign and return the Form of Election in accordance with the instructions set out in the Form of Election.

It will not be possible for a Small Shareholder to elect to have only some, but not all, of their shares of Class A common stock sold under the Share Sale Option. Small Shareholders may elect to (i) take the Share Sale Option in respect of their full entitlement of shares of Class A common stock or (ii) receive a direct registration statement in respect of their full entitlement of shares of Class A common stock.

The availability of the Share Sale Option is subject to the Demerger becoming effective. The availability of the Share Sale Option is not conditional on a minimum number of Small Shareholders electing to take it or on any minimum number of shares of Class A common stock being sold under it.

Contingency arrangements in respect of settlement in Hong Kong

The deadline for Qualifying Shareholders in Hong Kong to return a completed Form of Election will not be valid if there is a tropical cyclone warning signal no.8 or above, “extreme conditions” caused by super typhoons, a “black” rainstorm warning or any other event that prevents or substantially disrupts business activity in Hong Kong on             , 2021. The arrangements should one of more of these events occur will be as follows:

 

  (A)

subject to paragraph (C) below, if there is a tropical cyclone warning signal no.8 or above, “extreme conditions” caused by super typhoons, or a “black” rainstorm warning in force in Hong Kong at any local time before 12.00 noon and no longer in force after 12.00 noon on             , 2021, the deadline to return a completed Form of Election will be 5.00 p.m. on the same business day;

 

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  (B)

subject to paragraph (C) below, if there is a tropical cyclone warning signal no.8 or above, “extreme conditions” caused by super typhoons, or a “black” rainstorm warning in force in Hong Kong at any local time between 12.00 noon and 4.30 p.m. on the next business day which does not have either of those warnings in force at any time between 9.00 a.m. and 4.30 p.m.; and

 

  (C)

to the extent that there is any event that prevents or substantially disrupts business activity in Hong Kong on            , 2021, the deadline to return a completed Form of Election will be rescheduled to 4.30 p.m. on the next business day on which there is no such disruptive event.

The settlement process for Qualifying Shareholders in Hong Kong described above will then take place as soon as practicable afterwards.

Holders of beneficial interests in Prudential ordinary shares through the CCASS

Hong Kong Shareholders who hold a beneficial interest in Prudential ordinary shares through CCASS at the Record Date will need to take further action to receive a direct registration statement relating to the shares of Class A common stock to which they will be entitled, or to take the Share Sale Option (which is available to Small Shareholders only). The details of such arrangements are subject to agreement between the relevant parties, including HKSCC Nominees Limited and the CCASS participants.

Singapore Holders

Owing to practical difficulties arising in connection with the distribution and settlement of shares of Class A common stock to Singapore Holders through CDP, it is expected that the Share Sale Option will be compulsory for Singapore Holders at the applicable Record Date (being the Record Date for Hong Kong Shareholders). Therefore the shares of Class A common stock to which such Singapore Holders will be entitled upon completion of the Demerger will be sold on their behalf under the Share Sale Option and the cash proceeds, net of applicable withholding taxes, paid to HKSCC Nominees Limited for onward transmission to them via CDP.

Singapore Holders who wish to retain the option of receiving shares of Class A common stock may request to move their holding of interests in Prudential ordinary shares from CDP to CCASS, such that their interests in Prudential ordinary shares are credited into the relevant CCASS account by or before the Record Date for Hong Kong Shareholders. Such Singapore Holder would then be considered as a holder of beneficial interests in Prudential ordinary shares through the CCASS, and the settlement process in respect of the shares of Class A common stock for such Singapore Holder would be as described in the section above.

A Singapore Holder who holds their interest in the Prudential ordinary shares through CDP and wishes to remove such interest in the Prudential ordinary shares from CDP to the CCASS can do so as follows:

 

   

the Singapore Holder or their CCASS participant must have a securities account in the CCASS system;

 

   

the Singapore Holder (where the Singapore Holder holds a direct securities account with CDP) or their depository agent (where the Singapore Holder holds a securities sub-account with a depository agent) shall submit the following to CDP;

 

   

a duly executed CDP transfer form; and

 

   

payment of the applicable transfer charges (currently comprising the transfer fee of a minimum of S$30.00 and a maximum of S$100.00 and all applicable conversion and correspondent bank charges), together with the applicable goods and services tax, and all other charges as may be prescribed by CDP in its sole discretion;

 

   

the Singapore Holder must simultaneously instruct CDP’s CCASS participant to expect receipt of such interest in Prudential ordinary shares from CDP and to match the relevant movement;

 

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upon receipt of the duly completed CDP transfer form, CDP will debit the relevant number of Prudential ordinary shares from the Singapore Holder’s securities account with CDP and thereafter instruct its CCASS participant to move such Prudential ordinary shares to the CCASS account as specified by the Singapore Holder; and

 

   

CDP will send a confirmation of the debit to the Singapore Holder.

If the Singapore Holder wishes to move their interest in the Prudential ordinary shares from CDP to the CCASS, they shall be responsible for ensuring that the Prudential ordinary shares are credited into the relevant CCASS account in time for them to be recorded as holding a beneficial interest in Prudential ordinary shares through CCASS by or before the Record Date.

Treatment of Prudential ADRs

If you are a holder of Prudential ADRs, you will receive your entitlement to shares of Class A common stock on             , 2021, the Distribution Date for Prudential ADRs. JPMorgan Chase Bank N.A., in its capacity as the U.S. Depositary for Prudential ADRs, will instruct our transfer agent to deliver the shares of Class A common stock to which the U.S. Depositary is entitled directly to holders of Prudential ADRs, either in a book-entry account at our transfer agent, or for Prudential ADRs held through a bank, broker, or other nominee, to such bank, broker or other nominee. The Share Sale Option will be available to Prudential ADR Holders who are registered holders of 5,000 or fewer Prudential ADRs.

Results of the Distribution

After the completion of the Demerger, we will be a separate, publicly-traded company. Immediately following the completion of the Demerger, we expect to have approximately                  shares of Class A common stock issued and outstanding, based on the number of Prudential ordinary shares issued and outstanding on             , 2021. The actual number of shares of Class A common stock Prudential will distribute in the Demerger will depend on the actual number of Prudential ordinary shares issued and outstanding on the Record Date, and will reflect any issuance of new shares or exercises of outstanding options pursuant to Prudential’s equity plans on or prior to the Record Date. The distribution will not affect the number of issued and outstanding Prudential ordinary shares or any rights of Prudential Shareholders.

In connection with the Demerger, we and Prudential have entered into the Demerger Agreement and the Registration Rights Agreement. These agreements will govern the relationship between Prudential and us up to and after completion of the Demerger. See “Certain Relationships and Related Party Transactions.”

Listing and Trading of our Class A Common Stock

We are presently an indirect majority-owned subsidiary of Prudential. Accordingly, no public trading market for our Class A common stock currently exists, although a “when-issued” market in our Class A common stock may develop prior to the completion of the Demerger. See “—Trading Prior to the Distribution Date” below for an explanation of “when-issued” trading. We expect to apply to list our Class A common stock on the NYSE under the symbol JXN. Following the completion of the Demerger, the Prudential ordinary shares will retain their premium listing on the Official List and will continue to be traded on the premium segment for listed securities of the LSE and on the main market of the HKSE. The Prudential ordinary shares will also maintain their secondary listings on the NYSE (in the form of the Prudential ADRs) and the SGX-ST.

There is no certainty as to the price of Prudential ordinary shares or our Class A common stock following the Demerger. The price at which Prudential ordinary-shares and our Class A common stock may be quoted, and the price which investors may realize for such shares, will be influenced by a large number of factors. Some of these may be specific to either the Prudential Group or the Company and their respective operations, and others may affect the industries in which they operate, other comparable companies or publicly-traded companies as a whole. The price of Prudential ordinary shares may also be affected by the exchange on which they trade. There can be no assurance that, following the completion of the Demerger, the combined trading prices of the

 

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Prudential ordinary shares and our Class A common stock will equal or exceed what the trading price of Prudential ordinary shares would have been in the absence of the Demerger. It is possible that after the completion of the Demerger, the combined equity value of Prudential and JFI will be less than Prudential’s equity value before the Demerger. See “Risk Factors.”

The shares of Class A common stock distributed to Prudential Shareholders will be freely transferable, unless you are considered our “affiliate” under Rule 144 under the Securities Act. Persons who can be considered our affiliates after the completion of the Demerger generally include individuals or entities that directly, or indirectly through one or more intermediaries, control, are controlled by or are under common control with us, and may include certain of our officers and directors. In addition, individuals who are affiliates of Prudential on the applicable Distribution Date may be deemed to be our affiliates following the completion of the Demerger. Our affiliates will be permitted to sell their shares of Class A common stock only pursuant to a registration statement that the SEC has declared effective under the Securities Act or under an exemption from registration under the Securities Act, such as the exemption afforded by Rule 144.

Trading Prior to the Distribution Date

We expect a “when-issued” market in our Class A common stock to develop on or shortly before             , 2021, the Record Date for Prudential Shareholders on the UK Register and Prudential ADR Holders, and continue up to and including             , 2021, the Distribution Date for Prudential ADR Holders. When-issued trading refers to a sale or purchase made conditionally on or before the securities of the spun-off entity have been distributed. If you own Prudential ordinary shares on the Record Date, you will be entitled to receive shares of Class A common stock in the Demerger. You may trade this entitlement to receive shares of Class A common stock, without the Prudential ordinary shares you own, on the when-issued market. We expect when-issued trades of our Class A common stock to settle on             , 2021, which is three trading days after the expected Distribution Date for Prudential ADRs. On             , 2021, the first trading day following the Distribution Date for Prudential ADR Holders, we expect that when-issued trading of our Class A common stock will end and “regular-way” trading will begin.

We also anticipate that on or shortly before the Record Date and continuing up to and including             , 2021 (in the case of Prudential ordinary shares) or             , 2021 (in the case of Prudential ADRs), there will be two markets in Prudential ordinary shares and Prudential ADRs: cum-entitlement and ex-entitlement. Prudential ordinary shares and Prudential ADRs that trade cum-entitlement will trade with an entitlement to receive shares of Class A common stock in the Demerger. Shares that trade ex-entitlement will trade without an entitlement to receive shares of Class A common stock in the Demerger. Therefore, if you sell your Prudential ordinary shares or Prudential ADRs cum-entitlement up to and including             , 2021 (in the case of Prudential ordinary shares) or             , 2021 (in the case of Prudential ADRs), you will be selling your right to receive shares of Class A common stock in the Demerger. However, if you own Prudential ordinary shares on             , 2021 and sell those shares up to and including the applicable Distribution Date, you will still be entitled to receive shares of Class A common stock in the Demerger.

Following the Distribution Date for Prudential ADR Holders, we expect our Class A common stock to be listed on NYSE under the trading symbol JXN. If when-issued trading occurs, the listing for our Class A common stock is expected to be under a trading symbol different from our regular-way trading symbol. We will announce our when-issued trading symbol when and if it becomes available. If the Demerger does not occur, all when-issued trading will be null and void.

Conditions to the Distribution

We expect that the Demerger will be effective on             , 2021, the Distribution Date for Prudential Shareholders on the UK Register provided that the following conditions have been satisfied:

 

   

the approval of the Demerger by Prudential Shareholders at the Prudential General Meeting;

 

   

the approval of the Demerger by the Prudential Board;

 

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completion of the pre-completion reorganization (whereby all of the shares of Class A common stock held by PUSH are distributed to PCAL, and then such shares are distributed from PCAL to Prudential to ensure that, immediately prior to completion of the Demerger, JFI is a direct majority-owned subsidiary of Prudential) and the reclassification of our common stock;

 

   

that the Form 10, of which this information statement is a part, has been declared effective by the SEC under the Exchange Act, no stop order suspending the effectiveness of the Form 10 will be in effect and no proceedings for that purpose will be pending before or threatened by the SEC;

 

   

any regulatory approvals that have been obtained and which are required for the implementation of the Demerger not having been withdrawn, revoked or rescinded (and such regulatory approvals not having lapsed);

 

   

Prudential’s sponsor’s agreement with Goldman Sachs International not having terminated;

 

   

acceptance by the NYSE of our Class A common stock for listing, subject to official notice of issuance; and

 

   

the no objection letter issued by the Hong Kong Stock Exchange regarding the Demerger pursuant to Practice Note 15 of the Hong Kong Listing Rules has not be withdrawn.

Reasons for Furnishing this Information Statement

Prudential is making this information statement available solely to provide information to Prudential Shareholders who will receive shares of Class A common stock in the Demerger. You should not construe this information statement as an inducement or encouragement to buy, hold or sell any of our securities or any securities of Prudential. This information statement does not contain a proxy and is not intended to constitute solicitation material under U.S. federal securities law. Changes to the information contained in this information statement may occur after the date of this information statement, and neither Prudential nor we undertake any obligation to update the information herein except as otherwise may be required by law or in the normal course of Prudential’s and our public disclosure obligations and practices.

 

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DIVIDEND POLICY

Consistent with our goals to manage risk and capital and optimize our financial leverage, we generally intend to target return of capital to our stockholders, 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. We define excess capital as total adjusted capital less 300% of company action level required capital. Consistent with statutory accounting requirements, total adjusted capital is defined as Jackson National Life’s statutory capital and surplus, plus asset valuation reserve and 50% of policyholder dividends of Jackson National Life and its subsidiaries. Company action level required capital is the minimum amount of capital necessary for Jackson National Life to avoid submitting a corrective action plan to its regulator.

We expect to be in a position to distribute capital of between $325 million and $425 million to our stockholders in the first 12 months following the completion of the Demerger, through cash dividends and/or stock repurchases, depending on market conditions and subject to approval by our board of directors.

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.” For a discussion of the dividend capacity at Brooke Life and Jackson National Life, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Distributions from our Insurance Company Subsidiaries.”

 

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RECAPITALIZATION

We have historically operated with a capital structure that reflected our status as a wholly-owned subsidiary of Prudential. To prepare for the Demerger and operation as a separate public company, we will undertake a number of financing initiatives designed to provide an efficient and flexible capital structure, as summarized below (collectively, the “Recapitalization”). In undertaking the Recapitalization, we are focused on several goals:

 

   

Maintaining our stand-alone credit ratings,

 

   

Entering into new financing arrangements that are supported solely on the basis of our stand-alone credit profile, and

 

   

Establishing and maintaining a minimum amount of approximately $250 million in cash and cash equivalents at JFI.

As of December 31, 2020, on a pro forma basis giving effect to the Recapitalization, we would have had $2.7 billion of indebtedness, representing a total financial leverage ratio of approximately 28%.

Credit Facilities

On February 22, 2021, we and a syndicate of banks entered into a credit agreement consisting of a $1.0 billion 3-year senior unsecured revolving credit facility (the “Revolving Facility”), and a credit agreement consisting of a $1.7 billion 364-day senior unsecured delayed draw term loan facility (the “364-Day DDTL Term Facility”) and a $1.0 billion 2-year senior unsecured delayed draw term loan facility (the “2-Year DDTL Term Facility” and together with the 364-Day DDTL Term Facility, the “DDTL Term Facilities”; and the DDTL Term Facilities, together with the Revolving Facility, the “Facilities”). On and after the date of completion of the Demerger, the Revolving Facility provides for borrowings to be available for working capital and other general corporate purposes with aggregate commitments of $1.0 billion, with a sublimit of $500 million available for letters of credit. The Revolving Facility further provides for the ability to request, subject to customary terms and conditions, an increase in commitments thereunder by an additional $500 million. On or prior to the date that is the six-month anniversary of our entry into the credit agreements, the DDTL Term Facilities provide for a single drawing under each for general corporate purposes and, subject to a reduction in commitments and borrowings as set forth below, provides for aggregate commitments for borrowings of up to $1.7 billion under the 364-Day DDTL Term Facility and $1.0 billion under the 2-Year DDTL Term Facility. We expect to draw approximately $750 million under the 2-Year DDTL Term Facility prior to the completion of the Demerger.

The Revolving Facility matures on the earliest of (x) August 23, 2021, if the Demerger has not yet occurred, (y) the date that is 18 days from the funding under the 364-Day DDTL Term Facility or the 2-Year DDTL Term Facility, if the Demerger has not occurred on or prior to such date and (z) February 22, 2024, with our option subject to customary terms and conditions for up to two one-year extensions for commitments of consenting lenders. The 364-Day DDTL Term Facility matures on (x) the date that is three months from the funding of commitments thereunder, if the Demerger has not occurred on or prior to such date or (y) otherwise, February 22, 2022. The 2-Year DDTL Term Facility matures on (x) the date that is three months from the funding of commitments thereunder, if the Demerger has not occurred on or prior to such date or (y) otherwise, February 22, 2023.

Under the terms of credit agreement for the DDTL Facilities, subject to certain exceptions, 100% of the net cash proceeds from any debt issuance, preferred equity issuance or hybrid instrument issuance by us or our subsidiaries (including the net cash proceeds from the contemplated debt securities offering described in “Anticipated Financing Activities Prior to the Demerger” ) is required to be applied (i) first to prepay the then outstanding principal amount and accrued interest thereon, if any, under the 364-Day DDTL Term Facility (or, to the extent such issuance occurs prior to any borrowing under the 364-Day DDTL Term Facility, to reduce on a dollar for dollar basis (or, if applicable, terminate) the then undrawn portion of the commitments thereunder) and (ii) thereafter, to prepay the then outstanding principal amount and accrued interest thereon, if any, under the 2-Year DDTL Term Facility (or, to the extent to the extent such issuance occurs prior to any borrowing under the

 

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2-Year DDTL Term Facility, to reduce on a dollar for dollar basis (or, if applicable, terminate) the then undrawn portion of the commitments thereunder). In addition, under the terms of such credit agreement, subject to certain exceptions and limitations, 100% of the net cash proceeds from non-ordinary course asset dispositions by us or our subsidiaries (including arising out of certain insurance and condemnation events) in excess of $50.0 million per transaction or series of transactions and $100.0 million per fiscal year, and subject to the right to reinvest such proceeds within a specified time period, is required to be applied (i) first to prepay the then outstanding principal amount and accrued interest thereon, if any, under the 364-Day DDTL Term Facility and (ii) thereafter, to prepay the then outstanding principal amount and accrued interest thereon, if any, under the 2-Year DDTL Term Facility.

Borrowings under the Facilities shall bear interest at a rate equal to, at our option, (i) adjusted LIBOR plus an applicable margin ranging from 1.25% to 3.00% per annum or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 2.00% per annum, in each case with the applicable margin determined based on our long term unsecured senior, non-credit enhanced, debt ratings. Each Facility is additionally subject to an unused line fee, on or after the date that is 60 days after entry into the credit agreements (or in the case of the Revolving Facility, if earlier, the date of availability of commitments thereunder) on the average daily undrawn commitments under such Facility, payable quarterly in arrears. Such unused line fees range from 0.175% to 0.50% per annum for the Revolving Facility and from 0.150% to 0.475% per annum for each DDTL Term Facility, in each case based on our long term unsecured senior, non-credit enhanced, debt ratings.

The credit agreements for the Facilities contain 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 incur additional indebtedness, create liens on our or our subsidiaries’ assets, make fundamental changes and, unless 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, pay dividends and distributions or repurchase common shares. The credit agreements for the Facilities contain financial maintenance covenants, including a minimum adjusted consolidated net worth test of no less than 70% of our adjusted consolidated net worth as of the date of the Demerger (taking into account 50% of the proceeds of any additional equity issuances) and a maximum consolidated indebtedness to total capitalization ratio test not to exceed 35%. Such financial maintenance covenants will be tested on the last day of each fiscal quarter, commencing with the first full fiscal quarter ending after, in the case of the credit agreement for the Revolving Facility, the date of availability of commitments thereunder and, in the case of the credit agreement for the DDTL Term Facilities, the first funding date of a DDTL Term Facility thereunder. 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.

Anticipated Financing Activities Prior to the Demerger

Depending on market conditions and other factors, we currently anticipate issuing debt securities prior to the completion of the Demerger. Under the terms of the DDTL Facilities, the net cash proceeds from the issuance of such debt securities are required to be applied to outstanding obligations or, if prior to a draw thereunder, a reduction on a dollar for dollar basis of undrawn commitments, under the 364-Day DDTL Term Facility and thereafter to outstanding obligations or, if prior to a draw thereunder, a reduction on a dollar for dollar basis of undrawn commitments, under the 2-Year DDTL Term Facility.

We will contribute the majority of the net proceeds from the issuance of debt securities, together with the proceeds from anticipated borrowings under the $1.0 billion 2-Year DDTL Term Facility, to Jackson National Life, our primary operating company. Jackson National Life intends to use such proceeds for general corporate purposes. We intend to maintain a minimum amount of at least $250 million in cash and cash equivalents at JFI for ongoing holding company liquidity needs, which amount will be retained from the net proceeds from the issuance of debt securities and the anticipated borrowings under the $1.0 billion 2-Year DDTL Term Facility.

There can be no assurance that we will be able to complete any offering of debt securities. If we are unable to offer and sell all or a portion of the debt securities that we currently anticipate issuing prior to the completion of the Demerger, we expect to borrow the amount of any such deficiency under the 364-Day DDTL Term Facility. We expect to draw approximately $750 million under the 2-Year DDTL Term Facility prior to the completion of the Demerger.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization on a consolidated basis as of December 31, 2020 on an actual basis and on a pro forma basis, giving effect to anticipated borrowings of $1,600 million on the 364-Day DDTL Term Facility and $750 million on the 2-Year DDTL Term Facility. You should read this table in conjunction with “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Financial Information” and our financial statements included elsewhere in this information statement.

 

(dollars in millions, except share and per share amounts)    As of December 31, 2020  
   Actual      Pro Forma  

Cash and cash equivalents

   $ 1,624.5      $ 3,917.9  
  

 

 

    

 

 

 

Debt:

     

Surplus Note

     249.7        249.7  

FHLBI bank loans

     72.3        72.3  

Term loans

     —          2,350.0  
  

 

 

    

 

 

 

Total debt

     322.0        2,672.0  
  

 

 

    

 

 

 

Equity:

     

Common stock, (i) Class A common stock 1,000 and                  shares authorized, $0.01 par value per share, and 887 and                  shares issued and outstanding at December 31, 2020 (as reported and pro forma) (ii) Class B common stock 1,000 and                  shares authorized, $0.01 par value per share, and 13 and                  shares issued and outstanding at December 31, 2020 (as reported and pro forma)

     —          —    

Additional paid-in capital

     5,927.8        5,927.8  

Shares held in trust

     (4.3      (4.3

Equity compensation reserve

     7.7        7.7  

Accumulated other comprehensive income, net of tax expense (benefit)

     2,634.1        2,634.1  

Retained earnings

     978.2        936.6  
  

 

 

    

 

 

 

Total stockholders’ equity

     9,543.5        9,501.9  

Noncontrolling interests

     493.6        493.6  
  

 

 

    

 

 

 

Total equity

     10,037.1        9,995.5  
  

 

 

    

 

 

 

Total capitalization(1)

     9,865.5        12,173.9  
  

 

 

    

 

 

 

Total capitalization, excluding accumulated other comprehensive income, net of tax expense (benefit)

   $ 7,231.4      $ 9,539.8  
  

 

 

    

 

 

 

 

(1)

Total capitalization is defined as Total stockholders’ equity plus Total debt.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth selected historical financial data as of the dates and for the periods indicated. The selected historical consolidated financial data as of December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020 set forth below have been derived from our financial statements included elsewhere in this information statement. The selected historical consolidated financial data as of December 31, 2018, 2017 and 2016 and for the years ended December 31, 2017 and 2016 set forth below have been derived from our financial statements not included elsewhere in this information statement. Our historical results are not necessarily indicative of the results to be expected for any future period.

This “Selected Historical Consolidated Financial Data” is qualified in its entirety by, and should be read in conjunction with, our financial statements included elsewhere in this information statement and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    Years Ended December 31,  
    2020     2019     2018     2017     2016  
    (in millions, except per share data)  

Statement of Income (Loss) Data

         

Revenues

         

Fee income

  $ 6,604.0     $ 6,412.9     $ 6,259.9     $ 5,825.6     $ 5,233.7  

Advisory and wealth management fees

    —         —         47.8       742.7       848.9  

Premium

    159.5       567.4       5,153.8       202.9       229.7  

Net investment income

    2,038.4       2,813.2       2,649.7       2,535.9       2,708.8  

Net losses on derivatives and investments

    (3,999.4     (6,383.9     (498.8     (3,180.2     (3,365.6

Other income

    64.0       68.8       65.0       355.2       73.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    4,866.5       3,478.4       13,677.4       6,482.1       5,728.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Benefits and Expenses

         

Death, other policy benefits and change in policy reserves, net of deferrals

  $ 1,283.8     $ 1,464.4     $ 6,967.0     $ 1,065.0     $ 999.9  

Interest credited on other contract holder funds, net of deferrals

    1,210.0       1,640.5       1,556.2       1,556.7       1,567.9  

Interest expense

    88.4       98.5       86.2       54.3       51.8  

Operating costs and other expenses, net of deferrals

    984.1       2,067.0       1,583.9       2,799.0       2,556.9  

Cost of reinsurance

    2,520.1       —         —         —         —    

Amortization of deferred acquisition and sales inducement costs

    (389.2     (980.7     1,091.5       (31.4     (164.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total benefits and expenses

    5,697.2       4,289.7       11,284.8       5,443.6       5,011.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pretax (loss) income before noncontrolling interests

    (830.7     (811.3     2,392.6       1,038.5       716.8  

Income tax (benefit) expense

    (495.0     (368.9     338.3       499.9       (84.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (335.7     (442.4     2,054.3       538.6       801.0  

Less: Net (loss) income attributable to noncontrolling interests

    (3.6     54.7       68.7       43.3       3.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Jackson Financial Inc.

  $ (332.1   $ (497.1   $ 1,985.6     $ 495.3     $ 798.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Years Ended December 31,  
     2020     2019     2018      2017      2016  
     (in millions, except per share data)  

Earnings Per Share Data

            

Earnings per share—common stock:

            

Basic

   $ (527,142.86   $ (1,380,833.33   $ 5,515,555.56      $ 1,375,722.22      $ 2,216,752.78  

Diluted

   $ (527,142.86   $ (1,380,833.33   $ 5,515,555.56      $ 1,375,722.22      $ 2,216,752.78  

Weighted average shares of common stock outstanding

     630       360       360        360        360  

 

     Years Ended December 31,  
     2020     2019     2018     2017     2016  
     (in millions)  

Balance Sheet Data (at period end)

          

Assets

          

Total investments

   $ 49,272.4     $ 73,237.4     $ 66,541.8     $ 61,363.2     $ 61,954.4  

Cash and cash equivalents

     1,624.5       1,911.1       3,935.2       2,217.7       1,364.7  

Reinsurance recoverable

     35,222.2       8,372.4       8,462.0       8,659.4       8,902.5  

Funds withheld reinsurance assets, as fair value under fair value option

     3,626.5       3,760.3       3,747.2       3,603.2       3,522.7  

Other assets

     16,257.0       14,578.3       13,345.9       13,574.7       13,348.9  

Separate account assets

     219,062.9       195,070.5       163,301.4       176,578.8       148,791.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 325,065.5     $ 296,930.0     $ 259,333.5     $ 265,997.0     $ 237,876.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Equity

          

Liabilities

          

Reserves for future policy benefits and claims payable

   $ 21,380.9     $ 19,136.4     $ 19,620.2     $ 12,725.8     $ 13,477.6  

Other contract holder funds

     64,538.4       64,304.5       60,720.6       61,040.4       61,175.7  

Funds held under reinsurance treaties, at fair value under fair value option

     3,626.5       3,760.3       3,745.1       3,604.5       3,523.1  

Debt

     322.0       2,691.8       331.9       336.9       341.9  

Other liabilities

     6,097.7       4,709.7       3,751.7       4,100.0       3,508.2  

Separate account liabilities

     219,062.9       195,070.5       163,301.4       176,578.8       148,791.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     315,028.4       289,673.2       251,470.9       258,386.4     $ 230,818.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity

          

Additional paid-in capital

     5,927.8       3,077.8       5,077.8       5,077.8       5,077.8  

Shares held in trust

     (4.3     (4.3     (11.4     (18.8     (22.7

Equity compensation reserve

     7.7       0.5       4.2       11.7       6.5  

Accumulated other comprehensive income, net of tax expense (benefit)

     2,634.1       2,332.9       (336.1     947.5       452.3  

Retained earnings

     978.2       1,365.8       2,737.9       1,289.5       1,452.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     9,543.5       6,772.7       7,472.4       7,307.7     $ 6,966.7  

Noncontrolling interests

     493.6       484.1       390.2       302.9       91.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     10,037.1       7,256.8       7,862.6       7,610.6     $ 7,057.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 325,065.5     $ 296,930.0     $ 259,333.5     $ 265,997.0     $ 237,876.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

The unaudited pro forma condensed financial information consists of the unaudited pro forma condensed balance sheet and statement of income (loss) for the year ended December 31, 2020. The unaudited pro forma condensed financial information should be read in conjunction with the information included under “Recapitalization,” “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included elsewhere in this information statement. We believe the unaudited pro forma condensed financial information presented below is useful to investors because it presents our historical results of operations for the periods presented giving effect to the debt financing transactions, debt restructuring transactions and Athene Reinsurance Transaction as if they had occurred as of the dates indicated below.

The following unaudited pro forma condensed financial information presents the historical financial statements of the Company as if the debt financing transactions had been completed as of December 31, 2020 for purposes of the unaudited pro forma condensed balance sheet and as if the debt financing transactions, debt restructuring transactions and Athene Reinsurance Transaction had been completed as of January 1, 2020 for purposes of the unaudited pro forma condensed statement of income (loss).

The unaudited pro forma condensed financial information is presented for informational purposes only and does not purport to represent our financial condition or our results of operations had the debt financing transactions, debt restructuring transactions and Athene Reinsurance Transaction occurred on or as of the dates noted above or to project the results for any future date or period.

The pro forma adjustments that were made include the following items:

Debt Financing

To prepare for the Demerger and operations as a separate public company, we have undertaken various recapitalization initiatives, both at JFI and on a consolidated basis, including the following debt financing transactions.

In February 2021, JFI entered into $3,700 million of Facilities with a syndicated group of fifteen banks. The Facilities included a $1,000 million 3-year senior unsecured revolving credit facility, a $1,700 million 364-day senior unsecured delayed draw term loan facility and a $1,000 million 2-year senior unsecured delayed draw term loan facility.

The primary adjustments to the unaudited pro forma condensed financial information from the debt financing are:

 

   

Unaudited Pro Forma Condensed Balance Sheet as of December 31, 2020 reflects pro forma adjustments that include debt arising from anticipated borrowings of $1,600 million on the 364-day senior unsecured delayed draw term loan facility and $750 million on the 2-year senior unsecured delayed draw term loan facility.

 

   

Unaudited Pro Forma Condensed Statement of Income (Loss) for the Year Ended December 31, 2020 reflects pro forma adjustments that include full year interest expense and facility maintenance fees, assuming the debt financing was completed on January 1, 2020, as well as closing costs and bank fees incurred to secure the loan financing of $53 million.

Debt Restructuring

To prepare for the Demerger and operations as a separate public company, we have undertaken the following debt restructuring transactions.

 

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In June 2020, JFI formed a new subsidiary, Jackson Finance, a Michigan limited liability company. Subsequently, Prudential and Jackson Finance entered into an Assignment and Assumption Agreement, whereby Prudential assigned to Jackson Finance all of its right, title and interest in a $2.0 billion surplus note previously issued by an affiliate of JFI to Prudential in exchange for Jackson Finance’s giving an undertaking to Prudential to pay the $2.0 billion principal plus accrued interest in September 2020 (the “JF Receivable”). Subsequently, JFI issued 374 shares of Class A common stock to a Prudential affiliate pursuant to a share subscription and accepted the JF Receivable in settlement of the share subscription, ultimately resulting in a cashless transaction in which the surplus note was contributed to JFI.

In June 2020, we entered into a Supplemental Agreement with respect to our outstanding $350 million loan with Standard Chartered Bank, pursuant to which we transferred the loan to Prudential, which was the guarantor of the loan. We established a payable to Prudential for the $350 million, plus all outstanding interest due, and Prudential, in turn, set up a corresponding receivable, which was contributed to a Prudential affiliate. Subsequently, we issued 66 shares of Class A common stock to a Prudential affiliate pursuant to a share subscription agreement and accepted this receivable in settlement of the share subscription, ultimately resulting in a cashless transaction in which the loan was transferred to a Prudential affiliate.

The primary adjustment to the unaudited pro forma condensed financial information from the debt restructuring are:

 

   

Unaudited Pro Forma Condensed Statement of Income (Loss) for the Year Ended December 31, 2020 reflects pro forma adjustments that exclude interest expense of $41 million associated with the $2.0 billion surplus note and exclude interest expense of $4 million associated with the $350 million loan.

Athene Reinsurance Transaction

In June 2020, Jackson National Life announced that it had entered into a funds withheld coinsurance agreement with Athene effective June 1, 2020 to reinsure a 100% quota share of a block of Jackson National Life’s in-force fixed and fixed index annuity product liabilities in exchange for a $1.2 billion ceding commission. In accordance with this agreement, Jackson National Life transferred invested assets with a statutory book value equal to the statutory reserve amount, less $1.2 billion in consideration of the ceding commission, into a funds withheld asset account. The primary adjustments reflected on the unaudited pro forma condensed financial information from the Athene Reinsurance Transaction are:

 

   

Unaudited Pro Forma Condensed Statement of Income (Loss) for the Year Ended December 31, 2020 reflects:

 

   

Revenue primarily composed of fee income associated with surrender charges of $44 million, net investment income of $392 million related to invested assets during the period in respect of reserves ceded, offset by net losses on derivatives and investments of $145 million and other income of $21 million; and

 

   

Expenses primarily composed of change in policy reserves of $22 million, interest credited of $258 million, allocated operating expenses of $50 million and deferred acquisition costs of $16 million during the period in respect of reserves ceded.

 

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Unaudited Pro Forma Condensed Balance Sheet

as of December 31, 2020

 

     As Reported     Debt
Financing
    Pro Forma  
     (in millions, except share and per share data)  

Assets

      

Total investments

   $ 49,272.4     $ —       $ 49,272.4  

Cash and cash equivalents

     1,624.5       2,293.4       3,917.9  

Deferred acquisition costs

     13,343.0       —         13,343.0  

Reinsurance recoverable

     35,222.2       —         35,222.2  

Funds withheld reinsurance assets

     3,626.5       —         3,626.5  

Deferred income taxes

     1,026.3       —         1,026.3  

Other assets

     1,887.7       15.0       1,902.7  

Separate account assets

     219,062.9       —         219,062.9  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 325,065.5     $ 2,308.4     $ 327,373.9  
  

 

 

   

 

 

   

 

 

 

Liabilities and Equity

      

Liabilities

      

Reserves for future policy benefits and claims payable

   $ 21,380.9     $ —       $ 21,380.9  

Other contract holder funds

     64,538.4       —         64,538.4  

Debt

     322.0       2,350.0       2,672.0  

Funds held under reinsurance treaties

     3,626.5       —         3,626.5  

Other liabilities

     6,097.7       —         6,097.7  

Separate account liabilities

     219,062.9       —         219,062.9