JXN - NYSE

Hello, everyone, and welcome to the Jackson Financial, Inc. 4Q '25 Earnings Call. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions] I'll now hand over to our host, Liz Werner, Head of Investor Relations, to begin. Liz, please go ahead.

Good morning, everyone, and welcome to Jackson's 2025 Fourth Quarter and Full Year 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 and are based upon management's current expectations. 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 if circumstances or management's estimates or opinions should change. 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, Laura Prieskorn; and CFO, Don Cummings. Joining us in the room are our President of Jackson National Life Insurance Company, Chris Raub; our Head of Asset Liability Management, Brian Walta; our Chief Actuary, Lin Sun; and our Treasurer and Head of Corporate Development, Dean Scott. At this time, I'll turn the call over to our CEO, Laura Prieskorn.

Thank you, Liz. Good morning, and thank you for joining our 2025 fourth quarter and full year earnings call. I'll begin with a review of our recently announced strategic actions, followed by a discussion of our 2025 accomplishments, our progress since separation and our 2026 financial targets. 2025 was an exceptional year as we surpassed our financial targets and set records for sales and distribution. We delivered another year of over $1 billion in free capital generation and grew free cash flow while providing initial funding for our new captive reinsurer, Hickory Re. Following my remarks, our CFO, Don Cummings, will discuss our financial performance in further detail. Beginning on Slide 3, Jackson's execution focus and core capabilities have been steadfast and are evident in both our success as a leading provider of retirement solutions and our performance as a public company. As an important next step in Jackson's growth, we recently closed on our previously announced strategic partnership agreement with TPG. This long-term partnership will support accelerated growth of our spread-based business and future flexibility. TPG's unique investment capabilities and collaborative culture align well with Jackson, and our teams have already been working closely together. Our partnership with TPG, combined with the capital efficiency from our captive strategy positions us well for fixed and fixed index annuity sales momentum. Turning to Slide 4. Our strong full year operating results drove nearly 12% growth in our adjusted operating earnings, supported by stable fee income and increased investment spread earnings. Our commitment to shareholder capital return and the benefit of share repurchases resulted in over 20% growth in adjusted operating earnings per share for the full year. As a reminder, our net income includes the impact of our annual assumption review and net hedge results, which Don will discuss. Over the course of 2025, our sustained profitability and disciplined capital management resulted in well over $800 million in free cash flow and capital return. Importantly, we expect to maintain our balanced approach to capital management, focusing on financial strength, future growth and capital return to shareholders. We achieved the highest quarterly and annual retail annuity sales since going public in the fourth quarter and full year 2025. Continued growth in RILA, combined with accelerated growth in our recently introduced fixed index annuity have deepened our distribution relationships and diversified our business. For the full year, retail annuity sales of nearly $20 billion are at their highest level since 2019, and net flows improved for the quarter and full year. While the strong equity market continues to impact net flows and our healthy variable annuity book, our RILA and FIA sales are an increasing offset to VA lapses. These strong sales and a favorable market contributed to the 7% increase in total retail annuity account values to $269 billion at 2025 year-end. Turning to Slide 5. We exceeded all our 2025 financial targets, surpassing the high end of our capital return target range with over $860 million returned to common shareholders. We also ended the year with over $650 million in holding company liquidity and an RBC ratio of 567%. Free capital generation was over $1 billion for the second year in a row. As a result, we distributed over $1 billion from our operating company, Jackson National Life to our holding company, a 27% increase from 2024. We expect our strong capital generation to both support growth and continued capital return, and we have established a new financial target for free capital generation, reflecting our view of future profitability. Our accomplishments last year are significant not only on a single year basis, but also as they reflect Jackson's continued progress over more than 4 years. Slide 6 highlights the significant growth in capital return since separation due to our strong cash flows and prudent capital management. Beginning in 2021, when we launched as a public company and each subsequent year, Jackson increased its common shareholder dividend and raised its targets for capital return to common shareholders. During this time, we managed through periods of external market volatility and formed the captive Brooke Re that allows for more economic hedging and has significantly improved capital stability. Furthermore, Jackson's commitment to investing in our business supports our continued track record of capital returns. Turning to Slide 7. Our ongoing product innovation has resulted in sales growth and greater business diversification. This year was no exception, and we saw the benefits from our second quarter launch of Jackson's Market Link Pro III and Market Link Pro Advisory III, which we refer to as RILA 3.0. In the fourth quarter, RILA sales set a record at nearly $2.3 billion and for the 2025 full year, RILA sales rose 22%. RILA account value at 2025 year-end was $20 billion, a 14% increase from third quarter 2025 and a 74% increase from 2024. We expect RILA to remain a valuable offering for our advisers and their clients, and RILA 3.0 offers a broad range of index and crediting options along with valuable protection benefits. In addition to RILA, our recently launched fixed index annuity, Jackson Income Assurance, was a significant contributor to fourth quarter sales. And looking ahead, we expect this offering to provide further diversification in our new business mix. Importantly, RILA and FIA have broadened our distribution reach, resulting in expanded broker/dealer partnerships and deeper relationships with advisers selling multiple Jackson product lines. We also see momentum in the fee-based advisory business, where 2025 sales reached a record $1.5 billion. The growth was broad-based as our investment-only variable annuity, Elite Access and our RILA offering accounted for over 2/3 of advisory sales, while our traditional variable annuity accounted for nearly all of the remainder. Jackson's expanding annuity product portfolio allows advisers to best meet their clients' individual retirement planning goals. In our fifth year as an independent public company, we are well positioned with a more diverse product suite and broader distribution than at separation. Turning to Slide 8. As we look ahead to 2026, we expect our partnership with TPG and our captive strategy will contribute to stronger and more stable capital generation. As a result, we believe free capital generation will reach or exceed $1.2 billion given our healthy book of business and outlook for profitable growth. We are also raising our capital return targets for the fifth time, setting a 2026 target of $900 million to $1.1 billion, a 16% increase from our 2025 actual capital return of $862 million. Jackson's free capital generation provides greater visibility into potential free cash flow and sustainable capital return to shareholders. To that end, our Board approved our fifth increase in our quarterly dividend to $0.90 per share, a nearly 13% increase over our prior quarterly dividend. We believe Jackson's approach to capital management, balancing investment in our business, maintaining financial strength and returning capital to shareholders will continue to serve all stakeholders. At this time, I'll turn the call over to Don.

Thank you, Laura. Let's turn to Slide 9 and walk through our consolidated financial results for the fourth quarter. We delivered adjusted operating earnings of $455 million, driven by continued strength across our spread-based products. Earnings benefited from the ongoing expansion of our RILA, fixed and fixed index annuity lines as well as our institutional products. We also saw a favorable operating earnings impact this quarter from our annual actuarial assumption review, which added to the solid performance. As always, our spread-based products are supported by a high-quality, conservatively managed investment portfolio. Diversification and strong credit quality remain core to how we manage the portfolio, and that discipline continues to serve us well. Our spread-based product sales reflect the enhanced asset sourcing capabilities at PPM America. PPM's work has allowed us to direct new money into select higher-yielding asset classes, such as emerging markets, residential mortgages and investment-grade structured securities. This modest shift in new money allocation, combined with a compelling product lineup has helped Jackson maintain a stable and competitive position in the spread product market throughout the back half of 2025. And looking forward, we're excited about the momentum created by our new strategic partnership with TPG, along with the ongoing benefit of our capital-efficient captive strategy. Together, these initiatives will further strengthen our ability to offer competitive spread products that generate attractive financial returns. Given the recent headlines around asset-based finance and direct lending, it's worth noting that Jackson is currently underweight in these asset classes compared to our peers. We actually see potential market stress as an opportunity to step in and be selective investors. Additionally, TPG's expertise in direct lending, where they emphasize strong covenants and deep credit knowledge in the lower middle market segment positions us well as we gradually build exposure in this space. Now before we get into the notable items for the quarter, I'd like to take a moment to highlight our strong performance in book value per common share. Over the course of the year, we returned $862 million of capital to shareholders. As you would expect, that level of return contributed to a modest decline in total adjusted book value since year-end 2024. But importantly, our share repurchase activity reduced the diluted share count, which helped drive a 4% increase in adjusted book value per share, bringing it to $155.78. We're also very pleased with our profitability metrics. Our adjusted operating return on common equity for the year came in at 14.7%, up from 12.9% in 2024, reflecting the underlying strength and resilience of the business. Turning to Slide 10. Let me walk you through the notable items that affected adjusted operating earnings this quarter. We reported adjusted operating earnings per share of $6.61. After backing out $0.10 of notable items and adjusting for the difference between our actual tax rate and our 15% tax guidance, adjusted operating EPS was $6.43. That's a 33% increase from last year's fourth quarter. The improvement reflects the strong spread income growth I mentioned earlier, along with the benefit from a lower diluted share count because of our repurchase activity. As we typically do, we completed our annual actuarial assumptions review in the fourth quarter. This year's review resulted in a $0.23 per share operating earnings benefit compared to a $0.31 unfavorable impact in the prior year quarter. The 2025 update primarily reflected favorable mortality trends, which supported operating income in both our Retail Annuities segment and our Closed Block. The only other notable item this quarter was a $0.13 unfavorable impact from limited partnership results, which came in below our long-term 10% return assumption. Moving to Slide 11. This chart walks through our notable items for the full year. After adjusting for those items, our 2025 earnings per share were up 22% compared to last year. That growth was driven primarily by the strong improvement in our spread earnings, along with the benefit of a lower diluted share count from our repurchase program. On Slide 12, we take a closer look at the diverse and growing new business profile within our Retail Annuities segment. The segment delivered 27% growth over last year's fourth quarter and 10% growth sequentially. Our RILA product suite continues to be a standout. We achieved record sales of $2.3 billion, up 53% from the prior year quarter and 10% from the third quarter. Since launching the product in 2021, RILA assets under management have grown steadily and reached a record high of more than $20 billion at the end of 2025. As I mentioned earlier, our spread products are also benefiting from strong momentum. The successful launch of our new FIA offering contributed to $812 million in fixed and fixed index annuity sales during the quarter. With our recently announced strategic partnership with TPG, we feel very well positioned to continue this growth and expand the potential of our spread-based business. Turning to net flows. Our strong RILA sales and spread product performance drove $2.8 billion of nonvariable annuity net flows in the fourth quarter. On the variable annuity side, net outflows have remained somewhat elevated. This reflects several expected factors: the current moneyness of the block, an aging policyholder base and the impact of older, larger sales vintages coming off their surrender periods. On a full year basis, our surrender rate was essentially flat, reflecting overall strong equity market returns. We saw some quarterly fluctuations in surrender rates this year. In the first half of 2025, surrenders improved as market volatility kept policyholders on the sidelines. But since April, as equity markets reached new highs, we've seen surrenders pick up in the second half of the year. Looking ahead, we expect surrender activity to remain closely tied to what's happening in the equity markets. Importantly, those same strong market returns generated over $28 billion of separate account investment performance for the year, over $9 billion more than our variable annuity net outflows. This helped drive 2.8% growth in variable annuity account values and supported the strong levels of fee income we delivered throughout the year. Slide 13 gives an overview of pretax adjusted operating earnings across each of our business segments. Starting with Retail Annuities, we continue to see strong momentum in our spread business. That performance helped lift our average retail annuity AUM to $268 billion, up from $254 billion in last year's fourth quarter. This growth more than offset the lower favorable impact from this year's actuarial assumption update, resulting in pretax adjusted operating earnings that were $19 million higher than the prior year quarter. In our Institutional segment, pretax adjusted operating earnings were also up year-over-year. The increase reflects higher spread income driven by our expanding book of business. New business activity was elevated throughout the year, supported by strong demand for spread lending and our ability to act opportunistically in the market. Finally, in the Closed Block segment, pretax adjusted operating earnings improved compared to the fourth quarter of last year. The primary driver was a comparatively favorable impact from the annual actuarial assumptions update. Let me draw your attention to Slide 14, which really highlights how the quality and structure of our variable annuity book set us apart and support our economic hedging strategy. With Brooke Re, we've created a framework that lets us align our variable annuity hedging directly with the economics of our guarantees. Our VA guarantees at Brooke Re are well protected, and we're seeing stable regulatory capital and distributable earnings at Jackson National Life. That's been clear in our strong free capital generation, free cash flow and capital return over the past 8 quarters. This structure also benefits how we manage our RILA business. RILA remains at JNL separate from the variable annuity guarantees and is managed and priced on a stand-alone basis. All capital generation from RILA flows through JNL's results. There's a natural equity offset between RILA and our variable annuity guarantees. RILA is exposed to upside equity risk, while the VA guarantees are exposed to downside risk. Each is reserved and capitalized independently, VA guarantees under our modified GAAP framework at Brooke Re and RILA under the statutory regime at JNL with no diversification benefit between the two. While we don't get a capital or reserving benefit from these offsetting risks, we do gain hedging efficiency by netting them internally, which reduces our need for external equity hedging. And if RILA grows to surpass variable annuities in terms of equity risk, that benefit continues. Our external hedging would just shift from downside to upside protection. We see this structure as a real differentiator, underscoring our consistent economic approach and the strong performance of our book. We're confident in the quality of our annuity business and our ability to manage risk effectively. Slide 15 walks through a waterfall comparing our fourth quarter pretax adjusted operating earnings of $529 million to the GAAP pretax loss attributable to Jackson Financial of $376 million. We've heard your feedback. So this quarter, we're also providing additional disclosure that breaks out our net hedging results for VA and RILA separately. This should give you a clearer view of how the offsetting equity risk between these businesses are playing out in our results and hopefully make it easier to compare JFI's net hedge results with what's happening at Brooke Re. One of the themes I want to highlight here is the continued stability in our nonoperating results. Since shifting to a more economic hedging approach at the beginning of 2024, we've seen a meaningful improvement in consistency, which has also supported stronger and more predictable capital generation. Our total net hedge result for the quarter was a net loss of $405 million, driven largely by the impact of equity index implied volatility. Let me break the components down. Our hedging program is supported by a robust and stable stream of guaranteed benefit fees, which are assessed on the benefit base, not account value. This structure means our guarantee fee revenue remains consistent even during market downturns, helping to smooth earnings across cycles. In the fourth quarter, guarantee fees totaled $800 million, bringing the full year figure to $3.1 billion. This continues to demonstrate the durability and predictability of this revenue source. Turning to hedging instruments. Our hedging program produced a $370 million net loss in the quarter. This was primarily driven by losses on interest rate hedges as long-term rates moved higher and losses on VA equity hedges from modest gains in equity markets. Our new disclosure really brings out how the RILA business naturally offsets our VA equity exposure. When markets move higher, we typically see losses on our VA hedges, but those are often balanced by gains on our RILA hedges. This dynamic helps drive better overall hedge efficiency for the portfolio. We recorded a $405 million MRB loss related primarily to our variable annuity guarantees. The biggest driver here was higher equity index implied volatility during the quarter. It's worth noting that implied volatility does not impact the MRB calculation at Brooke Re because that entity uses a fixed volatility assumption, an approach designed to enhance balance sheet stability. Excluding the impact from volatility, MRB movements were modest this quarter and our VA net hedge results tracked closely with expectations. We also recognized a $393 million reserve and embedded derivative loss, reflecting higher RILA reserves tied to stronger equity markets. Much of this impact was offset by gains on our RILA hedges. Stepping back, after isolating the volatility effects I just mentioned, our overall net hedge result for the quarter was a modest $62 million loss, a very stable outcome, especially given the size and complexity of our liability profile. We believe these results underscore the effectiveness of our hedging program in supporting capital stability, managing economic risk proactively and preserving the durability of our business model. Lastly, our annual actuarial assumptions review resulted in an unfavorable impact of $360 million. This was driven mainly by higher reserves from updated policyholder behavior assumptions, including lapses. These increases were partially offset by favorable mortality updates and some model refinements. Given the scale of our variable annuity block, we view the overall impact of these updates as very manageable. Now let's turn to Slide 16, which walks through how Brooke Re's equity position evolved over the course of 2025. Throughout the year, Brooke Re's capital position proved resilient, and we continue to build on our base of hard assets, reinforcing the overall strength of the balance sheet and Brooke Re's self-sustaining design. We started the year in a strong position, about $2.1 billion of capital, which put us well above both our internal risk framework and our minimum operating capital requirements. For the full year, Brooke Re generated $27 million of capital before the annual actuarial assumptions review. Given the market volatility we saw in the second quarter and the higher lapse rates during the year, that's a solid result. Even with those headwinds, we still grew our capital base, which underscores the strength of our hedging and risk management under the Brooke Re structure. Now the assumptions review had a $349 million after-tax impact. This differs a bit from what we saw at the consolidated JFI level, mainly because JFI includes non-variable annuity business. The changes at Brooke Re were mostly tied to updates in lapse and utilization assumptions and reflect our long-term best estimate expectations of behavior. We expect those updates to lead to better actual to expected results in 2026 compared to the last couple of years if experience is similar. At year-end, Brooke Re's equity stood at $1.7 billion before we formed and capitalized Hickory Re. Even at that level, we were comfortably above both our internal and regulatory capital thresholds. Once we added the initial capitalization for Hickory Re, reported year-end equity increased by another $150 million, bringing total reported equity to just under $1.9 billion. Shifting to how we think about risk and capital management at Brooke Re, our goal is to make sure the entity always holds enough capital to stay well above minimum operating capital, even under stress. When we first launched Brooke Re, we discussed how our capital framework was built to hold up under stress, specifically to give us 95% confidence that we could withstand a wide range of market scenarios. That confidence level comes from running a robust set of stochastic scenarios to illustrate how our capital position would perform over time. At launch, we didn't just meet the 95% confidence level. We actually capitalized Brooke Re well above, closer to the 98th percentile of our projected capital distribution. In other words, we started from a position of real strength. At the end of 2025, we continue to be capitalized well into the tail, consistent with the 98th percentile and beyond. So overall, 2025 was a year that tested the structure and Brooke Re performed exactly as intended, maintaining strength through volatility and positioning us well heading into 2026. We expect Brooke Re to remain self-sustaining under normal market conditions. And over time, we see it becoming an additional source of free cash flow. Slide 17 highlights the continued growth in our capital generation and free cash flow. At Jackson, we follow a straightforward philosophy, earn it, then pay it. This framework rests on 3 pillars. Generating free capital, this is where we earn it, converting that capital into free cash flow, this is where we pay it and returning capital to common shareholders, the outcome of the first 2 steps working together. In the fourth quarter, after-tax statutory capital generation was $266 million. We view this metric as one of the clearest indicators of the underlying strength of our business, and it guides how we balance future growth with returning capital to shareholders. Quarterly capital generation was reduced by a onetime reserve increase of about $150 million or about $173 million, including deferred tax impacts, primarily related to the runoff closed block. This adjustment was not related to variable annuities or RILA. Excluding this nonrecurring item, capital generation was broadly consistent with the run rate we saw over the first 9 months of the year. Free capital generation was $235 million in the quarter, reflecting the estimated change in required capital driven by our strong and diversified new business results. For the full year, free capital generation totaled nearly $1.4 billion, well ahead of our $1 billion-plus expectation. As Laura mentioned, we've now added free capital generation to our financial targets for the year. In 2026, we expect to generate at least $1.2 billion in free capital, assuming equity markets deliver a 5% return and interest rates move in line with the year-end forward curve. While we're maintaining our RBC risk appetite at 425%, the stability we've seen in RBC over the past 2 years gives us confidence to shift our focus toward free capital generation, aligning with our earn it, then pay it approach. Free cash flow was again strong and consistent in the quarter. After funding the $150 million initial capitalization of Hickory Re and covering expenses and other cash flow items, free cash flow at the holding company totaled $119 million. For the full year, we distributed over $1.1 billion to the holding company and generated $838 million of free cash flow. Based on our year-end market capitalization, that represents a free cash flow yield of about 12% for 2025. While valuation reflects many factors, we believe this is a powerful indicator of Jackson's value, and it reinforces our commitment to continue repurchasing shares while also investing in growth. Our strong free capital generation and growing free cash flow enabled us to return $205 million to common shareholders in the fourth quarter, a 51% increase from the prior year quarter on a per diluted share basis. For the full year, we returned $862 million, above the top end of our disclosed range. Since becoming an independent public company, Jackson has now returned more than $2.7 billion to common shareholders, exceeding our initial market capitalization at separation. As Laura highlighted, we're increasing our capital return targets again, our fifth raise since going public, setting a target of $900 million to $1.1 billion, up from the $862 million we returned in 2025. Our strong capital position and a high-quality book of business underpin our ability to generate free capital well beyond 2026. This consistent capital generation supports a sustainable stream of free cash flow and enables continued capital returns to shareholders. Looking ahead, we expect growth in free capital generation to accelerate in line with the ongoing growth of our business. These results reinforce Jackson's robust capital generation profile, the stability and growth of our cash distributions and our continued focus on delivering enhanced long-term value for shareholders. Turning to Slide 18. This slide highlights the continued growth in our capital and liquidity position. Our in-force business continues to be a strong driver of profitability. Fee income from our variable annuity-based contracts, along with growing spread-based earnings supported solid capital generation during the quarter. At Jackson National Life, our capital position and RBC ratio have become much less sensitive to equity market movements, thanks to the Brooke Re structure. Today, changes in the equity markets primarily affect our assets under management and future capital generation, not our immediate capital levels or RBC ratio. In that sense, our earnings profile is looking more and more like an asset management business. Consistent with our approach of taking smaller periodic distributions, we paid $300 million to the holding company during the fourth quarter. After accounting for the impact of that distribution on our deferred tax assets, total adjusted capital ended the quarter just over $5.5 billion. Our RBC ratio came in at 567%, comfortably above our minimum target. Overall, we believe Jackson is operating from a position of real strength as we move into 2026. As I mentioned earlier, Brooke Re's capitalization remains well above both our internal risk management target, which reflects a range of detailed scenarios and our regulatory minimum operating capital level. During the quarter, there were no capital contributions to or distributions from Brooke Re other than the initial capitalization of Hickory Re. Looking ahead, we'll continue to manage Brooke Re on a self-sustaining basis given the long-term nature of its liabilities. As we announced last week, our strategic partnership with TPG has officially closed. The growth capital from that transaction will flow down through the ownership chain to Hickory Re. Just as a quick reminder, we received $650 million in value from the deal and issued $500 million of common stock. That equates to roughly 4.7 million shares at an effective premium of 30% at the time of signing. It's a great outcome that further strengthens our balance sheet and supports future growth. At the holding company level, we ended the quarter with $691 million in cash and investments, still above our minimum buffer and providing strong financial flexibility. That's down from $797 million in the third quarter, mainly reflecting the funding of our new captive and capital return to shareholders, which more than offset the operating company dividends. Overall, our fourth quarter results show strong momentum, supported by a solid balance sheet, healthy capital and liquidity levels and a business that's well positioned for continued success. I'll now turn the call back to Laura.

Thank you, Don. Turning to Slide 19. You can see our track record of executing on our business initiatives, delivering on our financial targets and creating value for all stakeholders. 2025 marked another year of significant progress and an important milestone for Jackson as we look forward to new growth opportunities. We expect our long-term partnership with TPG to leverage our core capabilities and lead to an expansion of our spread-based business. Jackson remains dedicated to serving financial professionals and their clients with the goal of helping Americans grow and protect their retirement savings and income. As we reflect on the year and our opportunities ahead, we recognize the hard work of all our associates whose talent and dedication remain our greatest strength. At this time, I'll turn it over to the operator for questions.

[Operator Instructions] Our first question comes from Suneet Kamath of Jefferies.

I had a couple on Slide 16. Just in terms of the capital levels, I mean you've kind of given us a qualitative sort of framework for how you think about the minimum capital. But I'm just wondering, is there any way that you can kind of give us a little bit more of a target so we can track this over time?

Suneet, it's Don. So first of all, just on Brooke Re, I think it's important to kind of zoom out and put our progress since early 2024 in perspective. And when we formed Brooke Re, we had shared quite a bit of detail around how we think about and manage capital there. And when we first set it up, the liability profile was almost entirely tied to our variable annuity guarantees. Now since then, we've taken a couple of important steps, both of which happened in the fourth quarter. And we believe those will give Brooke Re a more diversified liability and capital profile than it had initially. So I want to just spend a minute and cover what those are. First of all, we reinsured about $1.3 billion of payout annuity liabilities on a coinsurance basis with assets transferring over to support that block. And these liabilities are somewhat similar to the GMWB benefits on our VA book. But importantly, they don't have any equity market exposure, which means that, that block is going to be more stable over time. And another thing to keep in mind as we bring on assets through our partnership with TPG, we do see opportunities to enhance the profitability of that payout annuity block. Secondly, we did establish Hickory Re as a subsidiary of Brooke Re, and we ceded roughly $1.2 billion of in-force assets and liabilities into that structure. And there are a few advantages that I want to highlight here. Firstly, the modified GAAP framework we already use at Brooke Re is well understood by our regulator, and it's worked effectively over the past 2 years. So it made sense to kind of build on that foundation rather than setting up an offshore structure, which would just add cost and complexity to us. With respect to the liabilities at Hickory Re, which are the fixed annuity and fixed index annuity liabilities, we also get a diversification benefit in our minimum operating capital calculation. And that benefit should increase as the block grows with new sales. And then over the next couple of years, we do expect Hickory Re will be an additional source of free cash flow for us. And longer term, we believe that Brooke Re on a stand-alone basis will also be generating sufficient capital to support distributions back to the holding company. And then finally, the growth capital from TPG that came in at closing, that gives us more flexibility at JNL because it frees up excess capital that we otherwise would have used to fund our accelerated growth plans for spread products. And so that gives us confidence in stepping up our capital return plans as we've laid out in our financial targets. And as I've mentioned on prior calls, we would expect our RBC ratio to come down over time. So we're very comfortable with the performance and the balance sheet strength that we have at Brooke Re, and we'll continue to update you on progress there as we go throughout the year.

Okay. That's helpful. And then I guess the second question on the slide is the $27 million of capital generation. It just seems like a low number, especially in a pretty favorable equity market environment. I know in your prepared remarks, you called out a couple of things, the surrenders and I guess, volatility. But can you kind of dimension how big of an impact that had on capital generation? Or maybe said another way, what would you expect normal course capital generation to be?

Yes. We haven't provided guidance in terms of kind of normal market environment, capital generation. But you're right, the 2 items that I mentioned in my prepared remarks, the first one related to the volatility that we saw in the early part of the second quarter, and that certainly was a headwind for us. And then the second item, and we do provide some disclosure on this in our financial supplement and the MRB roll forward, we did see some pressure from higher-than-expected surrenders. The overall objective for Brooke Re is to keep it -- be self-sustaining over time. And we continue to believe that, that will be the case. It's just so happens that this year, we did see a couple of headwinds that resulted in the numbers you see here.

Our next question comes from Alex Scott of Barclays.

First thing I wanted to ask about was just the initiative with TPG and any way to help us think through what that could mean for growth in the retail annuity platform and how ultimately that will lead to flows. And so maybe not asking for an outlook, you probably don't want to give an outlook for flows per se. But maybe just helping us think directionally like what that will look like and when you could maybe expect to get to growth mode for AUM overall from a flow standpoint.

Slightly hard to hear. I think you were asking about the partnership with TPG and what the growth outlook looks like as a result of that partnership.

Yes. Sorry about that. I switched to the headset. Yes, you heard the question, right? Apologies.

Okay. Thank you. Our overall goal is to have a diversified set of competitive products that continue to meet a variety of consumer needs. Within the industry overall, we continue to see strong demand for a variety of needs, income, protection, growth, legacy benefits. So having that broad range of annuity offerings helps support that goal that we have for diversifying sales. Don, do you have anything to add around the TPG partnership to support that goal?

Yes. So Alex, thanks for that question. I would say that I would just highlight the progress that we made in spread products over the last half of this past year. We introduced a new product in -- late in the third quarter that really came online fully in the fourth quarter. That's our fixed index annuity product. And you can see we did between that and just other spread products, about $800 million in the quarter. I think that's probably a good yardstick to think about how much we can generate on an annual basis with the TPG partnership in place. The other point that I would highlight for you is that we'll be leveraging the TPG assets for other product lines outside of just fixed annuities and FIA products. We also anticipate some of those assets will fit in well with our RILA asset allocation strategy as well as even some on our institutional products. So we feel quite comfortable that as you look at our results going forward, we'll continue to be able to produce strong retail annuity sales results. And in terms of your question on when we would expect to get to kind of flat net flows, I would say it probably is going to take us a couple of years to sort of have the additional levels of sales coming in to offset what we're seeing on the VA book. And of course, with the VA book, that's going to depend on market environments because as we saw this year, even though we did have net outflows, we had investment performance that offset that by about $9 billion. So we're pretty optimistic about the partnership with TPG and how that's getting operationalized.

Great. Another question I had via is on the Hickory Re. Just thinking through your comment that, that could be a medium-term contributor to remittances versus Brooke Re more long term. if you had cash flow coming out of Hickory Re since it sits underneath Brooke Re, would that cash flow -- can we assume that in the medium term, that cash flow could be taken up to the HoldCo and go through Brooke Re even if it's not sort of Brooke Re stand-alone? I just wanted to clarify that point, whether it would be retained or not. And then maybe any other comments you have on just potential uses of excess capital you have at the HoldCo at JNL.

Yes. So you're right about the way the Hickory Re structure works. So any dividend that we would pay would go up to Brooke Re. And then we would anticipate, assuming there's not anything unusual going on with markets at the time that we would then be able to distribute that up through Brooke Re to our holding company, similar to the way we do today with our stacked structure on the J&L side. So you have that right. And just in terms of other uses of excess capital, we continue to be focused on growth. We think we have a very good opportunity with our broad distribution network to really focus in on the spread sales here in the near term. And as other opportunities come up for us to grow inorganically, we would look at those relative to how we can leverage that capital for returning to shareholders.

[Operator Instructions] Our next question comes from Tom Gallagher of Evercore.

A few questions. First is just on the Brooke Re equity. If you have a net MRB asset of $4.2 billion, how is the Brooke Re equity only $1.7 billion? What would the other accounting adjustment be on where the value of the net MRB asset is going to?

Yes. Thanks for that, Tom. So you're looking at 2 sort of components of the balance sheet, and I'm not going to get into all the kind of puts and takes, but we obviously have other assets at Brooke Re as well as liabilities. And so obviously, the net of all those represents the equity that we have left. As I mentioned in the kind of the more overview and putting Brooke Re in perspective, we have done a couple of transactions in the fourth quarter with the blocks of business that we reinsured into Brooke Re as well as into Hickory Re. So if you look at Brooke Re's consolidated balance sheet, we have a pretty strong position in terms of invested assets. Also, if you look at the capital that we put in initially, which was a total of $1.9 billion, $700 million of that was hard assets. We've seen that grow over the last couple of years as we've executed on the reinsurance settlements.

Got you. And Don, can you update us on what the hard assets are in Brooke Re at this point?

Yes, I'm not going to give you the exact number, but I would just say that the $700 million has grown pretty significantly. So that's the kind of the stand-alone VA piece. And as I mentioned earlier, those blocks that we moved over in the fourth quarter, those were supported by invested assets as well. So we believe Brooke Re has got a pretty strong consolidated balance sheet. And even if you look at the VA and the payout annuity lines of business separately, we're quite comfortable there, too.

Got you. And then just my follow-up is if we think about the annual actuarial review charges, if lapses do remain high on the VA side and you have another year of, we'll call it, close to breakeven hedging on VA, the $300 million to $400 million that you've been having every year would be a decent percentage of this $1.7 billion. So I guess when we think about playing that out for the next 2 or 3 years, is there a risk that you would have to contribute capital to Brooke Re? Because I know you said you have a buffer. I think it was 98% plus versus 95% CTE level currently. But if I think about just what's happened over the last three years and the why, like, we're how should we think about playing that out for the next two or three years? Thanks.

So, I'll make a couple of comments and maybe just ask Lin Sun, our new Chief Actuary, to kind of give a little bit of perspective on our actuarial assumption review process. But just in terms of thinking about how that could impact capital at Brooke Re, one of the things that I mentioned in my prepared remarks was that because the assumption updates that we included in the fourth quarter, those were primarily focused on lapses and benefit utilization. So we would expect that A versus E policyholder behavior that we disclosed in the MRB roll forward, we would expect that to close somewhat. And so that would certainly be helpful. And we'll continue to see how markets play out. As you know, from our prior discussions, -- we do tend to see a slowdown in surrender activity when equity markets are volatile or in periods where equity markets decline. We saw that clearly in 2002, if you look back on our results then. But maybe, Lin, if you could just add a little bit of color around what we went through on the actuarial assumption review.

Happy to. So as you mentioned, the majority of the assumption unlocking impact in 2025 was due to updating our long-term assumptions on lapses. Over the last few quarters, similar to other carriers in the industry, we saw an increase in lapses on our annuity book. We also saw fluctuations month-to-month and quarter-to-quarter. Lapses decreased. We saw a trend of that in the first half of 2025 before they increase again in the second half of the year. Our analysis showed that the elevated lapse experience was particularly prevalent for variable annuity policies with GLWPs at the money or slightly in the money relative to their account value. And we've updated our assumptions to reflect that dynamic. Based on my prior experience in the industry, I'm confident that our annual assumption process is robust, and we're well positioned for evaluating experience and bringing in the data when it becomes credible and affects our long-term view of experience.

Thank you very much. We have no further questions registered on today's call, and therefore, this concludes the Q&A session. I'll now hand the call back over to Laura Prieskorn for any concluding or final remarks.

Thank you. As you've heard this morning, 2025 was an exceptional year of progress for Jackson. We look forward to continuing these discussions and sharing our progress toward our 2026 targets after the first quarter. We thank you all for joining us today and your continued interest in Jackson.