Jackson Financial Inc. (JXN) Earnings Call Transcript

Good day, everyone. Welcome to the Jackson Financial Third Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Dean Scott, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Jackson's 2026 Third Quarter Earnings Call. Today's remarks may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events. Jackson's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. Except as required by law, Jackson is under no obligation to update any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. The reconciliation of those measures to the most comparable U.S. GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors.jackson.com. Presenting on today's call are Jackson's CEO, Don Cummings; and CFO, Brian Walta. Joining us in the room are our President and CEO of PPM America, Chris Raub, and our Head of Distribution of Jackson National Life Distributors, Alison Reed. At this time, I'll turn the call over to our CEO, Don Cummings.

Thank you, Dean. Good morning, everyone, and welcome to Jackson Financial's Third Quarter 2026 Earnings Call. As I shared last quarter, I am honored to lead Jackson as we continue to execute on our long-term strategy and pursue exciting opportunities ahead. Today, I will highlight our strong quarterly results, progress towards our financial targets and recent announcements on further strengthening our product portfolio and expanding our distribution reach. Following my remarks, our CFO, Brian Walta, will provide a more detailed review of our financial performance. Before turning to our quarterly results, I want to recognize the significant progress Jackson has made during our first 5 years as a stand-alone public company as summarized on Slide 3. Over that period, we have generated more than $88 billion in retail annuity sales. This reflects our continued leadership in variable annuities the development of a leading RILA franchise and our successful reentry into other spread-based products. Together, these initiatives have meaningfully shifted our sales mix with that diversification now increasingly reflected in our in-force business. This progress is also evident in our earnings. Since becoming an independent company, we have generated nearly $8 billion in cumulative adjusted operating earnings, including outstanding results this quarter. Strong growth in spread income is complementing our robust fee income and creating a more balanced and durable earnings profile. Our profitability is further demonstrated by our track record of capital generation and distributable cash flow. The strong cash flow profile of our in-force variable annuity business enabled us to immediately begin returning capital to shareholders with subsequent growth in spread income providing additional support. Since becoming an independent company, we have produced nearly $5 billion of free capital generation, which reflects our substantial investment in new business growth over that 5-year period. Over the same time frame, we returned a significant portion of capital generation to shareholders, more than $3.5 billion. This exceeds our initial market capitalization by $1 billion and on a net basis, we have repurchased nearly 30% of our initial share count. Our confidence in the sustainability of Jackson's capital generation led us to establish a common dividend in 2021, a key differentiator for our company. We have increased the dividend every year since then, and it now stands at $0.90 per share, an 80% increase from its initial level. This exceptional financial performance has been reflected in our stock price, which has increased nearly 400% over the last 5 years. I am extremely proud of what we have accomplished together and confident in Jackson's ability to build on this strong foundation. Going forward, we will continue to focus on enhancing our core business expanding opportunities for growth, investing in innovation and serving customers with the commitment and care they expect from Jackson. Turning to key financial metrics on Slide 4, we believe our performance through the first 9 months of 2026 positions Jackson to achieve our full year financial targets and reinforces the foundation for achieving our goal of sustainable long-term profitability. Third quarter operating earnings benefited from strong fee income and substantial growth in spread income as we delivered quarterly adjusted operating earnings of $7.55 per diluted share. Combined account value across retail annuities and institutional products, exceeded $291 billion, increasing 4% from the prior year quarter, driven by strong growth in spread product account values. Through the first 9 months of the year, adjusted operating earnings increased 20%. We expect our sizable, high-quality in-force business increasingly diversified earnings profile and continued sales momentum to support earnings and cash flow for the foreseeable future. Jackson's growth continues to be supported by strong capital position and robust capital generation. Statutory capital generation benefits from considerable variable annuity based contract cash flows, which are supported by rising equity markets as well as our growing spread product business. At quarter end, total adjusted capital was $5.9 billion, up 5% from last year's third quarter. Even as we funded significant new business growth, our ability to generate free cash flow and return capital to shareholders remain strong. Through the first 9 months of 2026, free cash flow increased 18% to $850 million, while we returned $838 million to shareholders through dividends and share repurchases. We remain committed to a balanced approach to capital management, maintaining our financial strength while funding profitable growth and returning capital to shareholders. Turning to retail annuity sales. Momentum accelerated in the third quarter with record sales exceeding $6.5 billion, up 22% from the prior year quarter. Our diversification efforts are gaining momentum with nearly 60% of retail annuity sales coming from spread-based products. We remain an industry leader in the rail market with nearly $29 billion in RILA assets and record third quarter RILA sales of $3 billion. We expect continued RILA growth driven by the June launch of Market Link Pro 4 and Market Link Pro advisory for. These additions to our RILA suite are the first in the industry to offer an option linked to the Dow Jones Industrial Average. We believe these enhancements provide advisers and their clients with valuable new choices while building on RILA's compelling combination of growth potential and downside protection. Our fixed and fixed index annuity sales are also advancing our spread product growth and diversification strategy. Over the past 12 months, account values increased 64% to $7.1 billion. Jackson Income Assurance, our income-focused fixed index annuity offers a differentiated income benefit that enables advisers to provide clients with a dependable retirement income solution. Looking ahead, we expect PPM's investment expertise in our strategic partnership with TPG to further strengthen our ability to offer competitive spread products with the collaboration already expanding our access to attractive investment opportunities and enhancing new money yields. Importantly, total retail annuity net outflows improved for the third consecutive quarter and declined 22% through the first 9 months of the year compared with the prior year period. While strong equity markets contributed to higher variable annuity surrenders during the quarter, healthy net inflows across RILA, fixed annuities and fixed index annuities supported the improving overall net flow trend. Turning to Slide 5. Our broad product portfolio continues to drive growth by expanding our distribution reach and increasing the role of annuities in client portfolios. During the quarter, more advisers sold multiple Jackson products, deepening engagement and strengthening our distribution relationships. We also maintained our leadership in the advisory channel where RILA, FIA and Elite Access, our investment-only variable annuity accounted for approximately 80% of our year-to-date advisory annuity sales. This performance illustrates the strength of our diversified product strategy and our strong distribution relationships. Our RILA franchise continues to broaden our distribution network. Since last year, we have added nearly 2,500 new advisers and reactivated over 3,500 advisers who had not recently sold the Jackson product. Our Jackson income assurance product is further expanding our distribution network. About 55% of producers selling the product are either new to Jackson or recently reactivated. We further strengthened our product portfolio in October with the launch of Jackson fixed index accumulation and Jackson Fixed Index Accumulation Advisory, our accumulation-focused FIA offerings. These products deliver significant flexibility and choice with 5 index options in 4 crediting methods that can be used in any combination. This launch reflects our continued commitment to providing financial professionals with solutions they can tailor to their clients' individual needs and effective. In September, we also launched enhancements to our single premium immediate annuity including a cost of living adjustment feature. Beyond our innovative annuity portfolio, we provide financial professionals with a solutions-based approach supported by advanced digital capabilities and consistently award-winning service. This recognition reflects the strength of our organization the trusted relationships we have built with our distribution partners and the dedication of our associates whose work delivers meaningful customer outcomes every day. We are proud of that legacy and remain firmly focused on our mission of helping Americans secure their financial futures. Turning to Slide 6. We are excited to announce we have been named the exclusive provider of annuities for AARP members. This program gives us a direct entry point to millions of AARP members and expands our opportunity to reach affluent households that invest without an adviser. We believe that AARP annuity program from Jackson will enhance consumer access to important retirement products by providing AARP members with a simple direct digital experience to purchase an annuity. Through the program, AARP members will have access to a distinct set of Jackson annuity products, including certain fixed index and fixed annuities through our new direct-to-consumer platform. This program combines an integrated digital experience with dedicated Jackson sales and service support. We expect to launch initially in 10 states later this month with national availability targeted for the first half of 2027. This program represents another important step in our growth and diversification strategy, expanding our distribution reach and providing an additional way for consumers access important retirement products through Jackson. We look forward to sharing further details on the program at launch and in the coming quarters. Turning to Slide 7. The evolution of our business mix since becoming an independent company demonstrates the growing diversification benefits of Jackson's broad product portfolio. At quarter end, spread products and investment-only variable annuities represented more than 40% of our in-force book, reflecting strong growth across our product suite. Our strategic focus remains clear: to drive growth through continued product innovation and broader distribution, further diversifying sales and building a more balanced in-force book. We believe this will lead to better risk-adjusted returns over time. Turning to Slide 8 and looking ahead to the full year, we are pleased with our accomplishments and the momentum we have built going into the end of the year. We remain confident in our ability to achieve our free capital generation target of $1.2 billion and deliver on our capital return to shareholders target range of $900 million to $1.1 billion. Based on our progress to date, we currently expect capital return to be at or above the midpoint of that range. In addition, our holding company liquidity, excluding the proceeds from our second quarter senior debt issuance is well above our minimum buffer. Importantly, we believe Jackson's market presence operating strength and capital position provide the foundation for long-term value creation. At this time, I'll turn the call over to Brian.

Thank you, Don. Before moving to results, I want to say how honored I am to step into the CFO role and build on Jackson's strong financial foundation. I look forward to maintaining our disciplined approach to financial management, supporting our growth priorities and delivering sustainable value for shareholders. Jackson is well positioned for the future with a strong balance sheet, differentiated capabilities and an experienced management team focused on long-term value creation. With that said, let's turn to Slide 9 and review our third quarter results. Pretax adjusted operating earnings were $612 million, or $631 million, excluding notable items. On an ex notables basis, earnings increased 24% year-over-year, driven by continued momentum in our spread-based business. Compared with the second quarter, earnings excluding notables declined slightly. Growth in fee-based and spread-based AUM was offset by higher acquisition costs associated with record annuity sales. Spread-based earnings continue to grow, supported by competitive products and our high-quality conservatively managed investment portfolio. Diversification and disciplined credit management remains central to our approach. Net investment income from our spread-based businesses increased meaningfully year-over-year, reflecting continued growth in spread-based AUM. As these businesses become a larger contributor to Jackson's results we expect to enhance our disclosures to provide greater visibility into key earnings drivers. PPM's enhanced asset sourcing capabilities are also allowing us to deploy more new money into select higher-yielding asset classes, supporting attractive new money yields and our competitive position in spread-based products. Our strategic partnership with TPG also gained momentum this quarter. The partnership broadened our investment opportunities and further supported new money yields. The strength and profitability of our in-force business is reflected in our strong return profile. Adjusted operating return on equity for the trailing 12 months ended September 2026, was 17.1%, up from 13.6% a year ago. This improvement reflects the resilience and earnings power of our business as we continue to diversify our sales mix and balance sheet with discipline. Turning to Slide 10. I'll walk through the notable items that impacted adjusted operating earnings this quarter. Free capital generation, which I'll discuss later, was also affected by these items. We reported adjusted operating earnings per diluted common share of $7.55. Excluding $0.24 of notable items and normalizing to our 15% tax guidance, adjusted operating earnings per diluted share was $7.67. That represents a 28% increase versus the third quarter of last year, which was driven by strong spread income growth and the benefit of a lower diluted share count from our ongoing common share repurchase program. Limited partnership results were below our long-term 10% return assumption, resulting in an unfavorable impact of $0.24 per share. While valuations within the limited partnership portfolio can vary quarter-to-quarter, we remain confident in the underlying quality and long-term performance of these investments. Our effective tax rate for the quarter was 13.7%, modestly below our 15% guidance. Turning to Slide 11, we will look at the continued growth and diversification of our retail annuities business. We remain #1 in traditional variable annuities and a top 3 provider of RILA. Third quarter sales increased 22% year-over-year, reflecting strong execution across our product portfolio. Total retail sales also increased 11% from the second quarter. The expansion of our wholesale territories is deepening distributor engagement and expected to help sustain that momentum. Spread-based products accounted for 58% of sales, reflecting the continued diversification of our business mix. RILA continues to perform exceptionally well. Third quarter sales reached a record $3 billion, up 44% year-over-year. Since launching in 2021, RILA AUM has grown to nearly $29 billion. Momentum also remains strong across our other spread-based products. Jackson Income Assurance contributed to total fixed and fixed indexed annuity sales of $796 million up 79% year-over-year. We expect that our new accumulation FIA and the continued expansion of our TPG partnership position us for further growth and increased long-term earnings from the spread-based business. Turning to net flows. Strong RILA and other spread-based sales generated $3.5 billion of nonvariable annuity net inflows, up 52% year-over-year and 20% sequentially. Within variable annuities, the all-in surrender rate increased modestly, both sequentially and year-over-year. As expected, strong equity markets continue to influence surrender activity in the in-force block. Importantly, year-to-date separate account returns were 9.3%, generating more than $17 billion of investment gains in variable annuity AUM. Those gains exceeded net outflows by more than $2 billion and the resulting account value growth continued to support strong fee income. Advisory sales further demonstrate the breadth of our distribution capabilities. Jackson ranks #3 in the advisory annuity market supported by a comprehensive product suite. More than half of third quarter advisory sales came from products other than variable annuities, another indication of the progress we are making in diversifying the business. Finally, institutional product sales totaled $755 million. This reflects strong demand for spread lending products and our disciplined, opportunistic approach to this market. Turning to Slide 12. Before reviewing the quarterly results, I want to highlight our economic hedging framework, which was strengthened by the formation of Brooke Re at the end of 2023. And Brooke Re is a Michigan-based captive reinsurer established to support the effective management of variable annuity guarantees on a market-neutral economic basis, including the hedging of both equity and interest rate risk. The structure was approved by a regulator, which regularly reviews Brooke Re's performance and balance sheet. Brooke Re is also subject to annual audits and regular stress testing. Brooke Re was designed with 3 primary objectives: first, to better align reserves and hedging with the underlying economics of the business; second, to reduce the need for costly noneconomic hedging; and third, to produce more consistent and intuitive results for stakeholders. We believe the structure has been highly successful in achieving these objectives. This is particularly important because of a limitation of statutory reserving related to the cash surrender value floor. For a healthy and profitable variable annuity block like Jacksons, heavily weighted towards prudently post global financial crisis vintages, strong earnings can cause statutory reserves to be floored at cash surrender value. In rising equity and/or interest rate environments, this can create a mismatch where hedge losses are recognized without a corresponding change in statutory reserves. As a result, the statutory framework can create a disincentive to hedge the underlying economic risk. Prior to Brooke Re, Jackson addresses asymmetry through noneconomic hedging expenditures, including the purchase of call options. Brooke Re addresses this limitation by allowing us to manage these risks on a more economic basis while also support more predictable capital generation at Jackson National Life. Importantly, Brooke Re was created to facilitate prudent risk management of our long-term variable annuity liabilities, not to create a capital or regulatory advantage. The structure allows us to manage the underlying economic risks over the life of these liabilities through an integrated reserving, hedging and capital framework with a strong focus on long-term policyholder protection. Consistent with that purpose, the transaction did not generate a day 1 capital benefit. At formation, Jackson National Life contributed $700 million of cash and investments to Brooke Re reducing its RBC ratio by approximately 80 points. Turning to the structure itself. Brooke Re currently reinsures our variable annuity guarantees, primarily guaranteed minimum withdrawal benefits and guaranteed minimum death benefits as well as payout annuities. Consistent with Michigan law, its reserving and capital framework is based on U.S. GAAP with necessary modifications and requires annual asset adequacy testing. Jackson National Life executes the hedging on behalf of Brooke Re, leveraging our established hedging resources and counterparty relationships. Jackson National Life settles all external hedge-related payments with counterparties daily, including during periods of significant market volatility. The 3-year settlement period under the reinsurance agreement smooths potentially significant hedge gains or losses that can arise in any individual period and was approved by our regulator. Importantly, these are long-duration liabilities supported by a stable guarantee fee stream that extends well beyond the 3-year settlement period while the associated hedge cash flows can occur over much shorter periods. The settlement period, which we monitor helps manage that timing difference. Since its formation, Brooke Re has made settlement payments to Jackson National Life consistent with the original transaction terms. Its capitalization remains well above both our internal risk management target and the regulatory minimum operating capital level. We also regularly stress us Brooke Re capacity to repay the reinsurance balance. Looking ahead, we will continue to evaluate opportunities to enhance our captive strategy with a continued focus on policyholder protection, economic risk management and capital efficiency. Consistent with our approach of providing expanded disclosures for Brooke Re annually at year-end, we anticipate providing additional transparency when we report year-end 2026 results. Overall, Brooke Re allows us to prudently manage the long-term economic risks of our variable annuity guarantees, protect policyholders over the long term, and support more consistent hedging outcomes and predictable capital generation. Turning to Slide 13. We highlight net hedge results by product and provide a reconciliation from pretax adjusted operating earnings to U.S. GAAP pretax income attributable to Jackson Financial. As a reminder, we recently enhanced our disclosure of net hedge results to separately present our variable annuity and RILA businesses. This provides greater transparency into our hedging results and highlights the offsetting equity exposures between VA and RILA. Excluding the impact of implied volatility and market risk benefits, the disclosure also offers insight into the change in equity at Brooke Re. Importantly, we hedge both VA and RILA independently with each hedging program focused on managing the economic risks of its respective business. At the enterprise level, however, the equity exposures of the 2 businesses naturally offset to a significant degree. This allows us to net those offsetting exposures through internal transactions with only the residual exposure hedged externally. As a result, a substantial portion of Brooke Re's hedging settlement balance relates to transactions within Jackson and does not involve external counterparties. That equity offset is not particularly evident in the third quarter results, which were influenced more by interest rate movements. However, you can see the benefit more clearly in the year-to-date results at the bottom of the slide. Through the first 9 months of the year, approximately $4.1 billion of VA hedge losses were partially offset by approximately $2.2 billion of hedge gains in RILA and FIA. During the quarter, our overall net hedge result was a $479 million gain, excluding the impact of implied volatility and market risk benefits. RILA and FIA generated a $285 million gain while variable annuities generated $194 million gain, excluding implied volatility. Starting with RILA and FIA, our hedging strategy is focused on economic outcomes rather than JFI GAAP results. The 2 perspectives can differ meaningfully. So quarterly net hedge gains or losses reported under JFI GAAP may not reflect the underlying economics and should not be viewed in isolation as a measure of hedging effectiveness. We saw that distinction this quarter. While the JFI GAAP net hedge result was meaningfully positive, the economic hedge result was much closer to neutral, consistent with our objective of managing the underlying economic risk of the business. Turning to variable annuities. Higher interest rates drove hedge losses during the quarter, but also benefited the liability side of the equation. Together with guarantee fees, this resulted in positive net hedge results, excluding the impact of implied volatility and market risk benefits. The quarter included an approximately $266 million unfavorable impact from implied volatility and market risk benefits. There are differences being JFI variable annuity results and Brooke Re results that extend beyond implied volatility, including differences in scope and accounting modifications. On a broker U.S. GAAP with necessary modifications basis, the quarterly net hedge gain was modestly higher than the JFI variable annuity result. During the quarter, Brooke Re received no capital contributions and made no capital distributions. Overall, these results demonstrate the benefits of our enterprise hedging approach. We independently manage the economic risks of our VA and RILA businesses while also benefiting from the natural offset between their equity exposures and maintaining our focus on more consistent capital outcomes. Turning to Slide 14, we'll review our capital generation free cash flow and shareholder returns. Third quarter after-tax statutory capital generation was $491 million, supported by strong fee income and continued growth in our spread-based businesses. We believe that statutory capital generation is a clear measure of the underlying earnings power of the business and an important guidepost as we balance investment in profitable growth with capital returns to shareholders. Free capital generation was $281 million after reflecting the capital required to support new business growth across an increasingly diversified sales mix. The quarter also included an RBC-related headwind associated with trailing 12-month fixed and fixed indexed annuity sales. With the higher level of production now reflected in the full 12-month measurement period. We would expect the magnitude of this headwind to moderate, absent a further meaningful increase in sales. Based on our performance through September, we remain confident in achieving at least $1.2 billion of free capital generation for the full year. Our RBC risk appetite remains at 425%. Our healthy RBC levels over the past several years support sustained free capital generation and reinforce our earn it then pay it philosophy. Holding company free cash flow was $275 million, up 27% year-over-year and broadly in line with the second quarter after funding expenses and other cash flow items. Strong capital generation and free cash flow supported $291 million of capital returns to common shareholders a 42% increase on a per diluted share basis from the prior year quarter. Overall, we continue to generate strong capital while funding significant new business growth and returning capital to shareholders. Turning to Slide 15, we'll review Jackson's strong capital and liquidity position. Our in-force business remains a significant source of earnings and capital generation. Fee income from our variable annuity based contracts combined with continued growth in spread-based earnings supported solid capital generation during the quarter. Our economic hedging approach and growing spread block have contributed to a more stable and diversified capital profile at Jackson. Consistent with our disciplined approach to capital management, Jackson National Life distributed $325 million to the holding company during the third quarter. After accounting for the related impact on deferred tax assets, total adjusted capital ended the quarter at $5.9 billion and our estimated RBC ratio was 524%, comfortably above our minimum target. These results demonstrate the continued strength and resilience of our balance sheet. At the holding company, we ended the quarter with nearly $1.4 billion in cash and investments, well above our updated minimum liquidity buffer and providing substantial financial flexibility. Overall, our third quarter results demonstrate our ability to fund growth, return capital to shareholders and maintain a strong and resilient balance sheet. Slide 16 highlights the significant liquidity available across Jackson's legal entities. These resources include our PCAPs expanded revolving credit facility and proceeds from the senior debt issuance completed in the second quarter. That issuance included $750 million of senior debt, effectively prefunding $650 million of debt maturities due in 2027 while adding $100 million of incremental holding company liquidity. We also expanded our revolving credit facility from $1 billion to $1.25 billion and extended the maturity from 2028 to 2031. At quarter end, Jackson Financial, Inc. had approximately $4 billion of available liquidity, including holding company cash, highly liquid securities and our undrawn revolving credit facility. Jackson National Life maintained nearly $32 billion of available liquidity, including $6 billion in cash and U.S. treasury securities and an additional $23 billion in other highly liquid marketable securities. Jackson National Life also has $2.3 billion of additional borrowing capacity through its long-standing federal home loan bank relationship. Our leverage profile also remains among the strongest in our peer group. Total leverage was approximately 23%, excluding accumulated other comprehensive income. Adjusting for the planned retirement of our 2027 maturities, leverage would decline to approximately 18%. Taken together, our capitalization, liquidity and leverage provide meaningful financial flexibility across a wide range of market conditions. Turning to Slide 17. We highlight PPM America, our wholly owned asset management subsidiary. PPM's AUM approached $102 billion this quarter, benefiting from growth in Jackson's spread-based businesses as well as third-party AUM. PPM, together with our strategic relationship with TBG enhances our ability to source attractive investment opportunities and maintain competitive yields across both our retail and institutional spread businesses. We remain highly optimistic about PPM's growth trajectory and its ability to further expand the capabilities. We view PPM as an important strategic differentiator in an increasingly valuable contributor to Jackson's long-term growth. Turning to Slide 18. We'll review the quality, diversification and conservative positioning of our investment polio. Our disciplined asset liability management framework guides our strategic asset allocation and helps us balance yield liquidity and capital efficiency. Our fixed maturity portfolio remains high quality and defensively positioned with a meaningful allocation to highly liquid U.S. treasuries, which represent approximately 7% of the portfolio. Exposure to below investment-grade securities remains very limited at just 1% of the portfolio and consists almost entirely of corporate bonds and loans. The portfolio is also well diversified by asset type. Corporate securities represent roughly 56% of invested assets, complemented by mortgage loans, asset-backed securities and a modest allocation to private equity through our limited partnership investments. Our commercial mortgage portfolio remains conservatively underwritten, supported by strong loan-to-value and debt service coverage ratios, supporting resilience across market cycles. And importantly, our combined exposure to hyperscaler data center and AI investments is less than 2% of our general account and is well diversified. Overall, our investment approach remains focused on credit quality, diversification and liquidity, supporting dual earnings while preserving the strength of our balance sheet. Slide 19 provides enhanced closures on our private investment exposure. As we noted last quarter, Jackson remains underweight in direct lending relative to peers, giving us capacity to invest selectively as we continue to diversify the portfolio. We believe recent market dislocation is creating more compelling entry points relative to more recent vintages. Through our strategic partnership with TPG, we also benefit from deep direct lending expertise, particularly in the lower middle market, where disciplined underwriting and strong covenant protections are central to the investment approach. As of the third quarter, 60% of our private debt portfolio consisted of traditional private placements, with the remainder allocated to infrastructure, asset-backed securities and credit tenant leases. Overall, our private investment portfolio remains conservatively positioned and supported by a robust credit oversight. We believe that we have meaningful capacity to selectively deploy capital supporting our growth and diversification strategy while maintaining the strength of our balance sheet. I'll now turn the call back to Don.

Thank you, Brian. Turning to Slide 20. We remain confident in Jackson's outlook, supported by the strength of our business and significant financial flexibility. Over the last 5 years, we have successfully navigated volatile markets while pursuing disciplined profitable growth. Our associates continue to be our greatest strength and I'm grateful for their dedication and contributions to our success each quarter. At this time, I'll turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Alex Scott with Barclays.

First one I had you is if you could talk a bit about the review of the lapse rates. I guess, as we've looked at some of your peers in the industry that had 3 key reviews, we did see some adjustments to lapse rates. And I just wanted to maybe get sense of the experience you're seeing and on the 4Q review, if there was impact to what degree do you have capital flexibility to absorb that in broker as opposed to maybe needing to utilize capital at the holding company?

Alex, so obviously, our fourth quarter assumption review is still underway, and that is a very disciplined and experience-based process. So I don't want to get out of its conclusions. And -- but we will evaluate emerging policy holder behavior against our long-term assumptions and broader industry experience. But let me turn it over to Brian for just an update on the review.

Yes. Thanks, Don. We have the comprehensive assumption review is in the fourth quarter, and we are still working through that review. There's something I can really report specifically at this time, we will provide those details in our year-end earnings. But like Don stated, we do have a very disciplined data-driven process. We have a lot of experience for our own business, and we then supplement that with industry and benchmarking along the way. And what we have seen is that the increase in lapses have kind of kicked up a little bit over the last several years. And so as that data does work its way into our analysis it would act our assumption review. But I would note, this is similar to [indiscernible] we're not going to change our process from what we've done from prior years. And importantly, when we made the adjustments that we did last year in 2025, we did see an improvement in our unexpected policyholder behavior this year. I also would note that we also saw an increase in our expected policy behavior. It just became more accurate as equities were higher again in 2026. We would expect modestly higher lapse rates, and that is what we've seen. But we've been able to, despite that show lower unexpected behavior. Overall, since we don't know the impact at this point in time, I don't want to speculate on the number. But I would say, we had a very strong Brooke Re order as we saw for the net hedge results and we remain confident in the overall enterprise from a financial flexibility standpoint.

Got it. That's all helpful. So we'll stay tuned on that. Follow-up question I had is just on the intercompany settlement agreement between Brooke Re and Jackson National, and just the potential timing mismatch so sort of the 3 years versus whatever the duration of the MRBs is how do you plan on managing that? Like are there any immediate stresses from it if equities and rates continue to go up, let's say, in a scenario like what are the levers you would use to potentially deal with what maybe some people are calling on economic sort of difference between the 3-year ever amortization versus the duration of the MRB.

Alex, thanks for that question. Maybe before I turn it over to Brian to get into some of the details there, I thought it would just be helpful to give just a more strategic view of how Brook Reef fits into our overall enterprise. Obviously, it's a key part of the Jackson enterprise. And if you look back at sort of equity market performance and interest rates since we formed Brooke Re, they have risen meaningfully. The S&P 500 is up about 60% on a price return basis since the beginning of '24. And the 20-year treasury rate, which is kind of the point in the curve that's more relevant for our liabilities is up nearly 150 basis points. So given the current structure of our hedging program, this market environment has resulted in the hedge losses at Brooke Re as you've seen. And for those who follow Jackson and really kind of understand our economic approach to hedging, that this is an environment that can create some liquidity headwind book rate while for the overall Jackson Enterprise, it actually is a tailwind for our business. I would also highlight that as equity markets and interest rate decline, as they have done in October, the liquidity position can improve. So the results are very past dependent. But really, whatever the market environment, we expect to be able to manage through those conditions and the steady stream of guarantee fees that we have at Brooke Re, along with the extended settlement period, really give us flexibility to navigate market environments like this one. And since becoming a public company and since the formation of Brook Re, we've taken a number of deliberate steps to strengthen the overall liquidity position for the entire Jackson Enterprise. Most recent example of that was our PCAPs transaction. So we have liquidity sources available and should we need to support Brooke Re in the future, we'll take the appropriate actions to ensure its obligations are met. And our commitment in this area is really unwavering. We'll continue to keep our promises to policyholders and to all of our other stakeholders. So with that sort of high-level kind of strategic view, maybe, Brian, you could give a little more color on some of the details.

Don, and I would reiterate, certainly what you said, we feel that Brooke Re is an excellent solution to manage the long-term economics. It protects our policyholders in an important way. And the one thing that we really and to think through from Don talked about, certainly, as markets have gone up, interest rates have gone up since the inception of Brooke Re that has also been -- while we have taken hedge losses, our MRB improved significantly. The cash flow generation on our base contract in JNL has done quite well. Also, so higher equities, higher interest rates, in general, are certainly good for the overall enterprise. And I would note that the Brooke Re in particular, benefits from the significant recurring cash flow, as we talked about the $2.8 million, that has been stable. It has been the $2.8 billion, $2.9 billion range since the inception Brooke Re despite some of the elevated lapses that we talked about earlier. So that is something that will be around for a number of years that we would expect. And then the other thing I would note is, as RILA has grown significantly, a large chunk of the hedge losses that are actually at Brooke Re are actually internal trades. They're offset at JNL via the RILA hedging that we do on the equity standpoint. So a notable percentage of the reinsurance -- outstanding reinsurance balance is, in fact, offset in internal trades. So if we look at all those resources, we remain confident in our ability to manage those obligations. And we think the financial flexibility of the enterprise is very strong.

Our next question comes from Ryan Krueger with KBW.

One quick one first. Hickory Re started with $650 million of capital contributed. Can you give us any rough sense of how much of that original $650 million has been consumed so far through fixed -- in fixed and fixed into annuity growth that has been ceded to Hickory Re?