Jackson Financial was able to report normal-looking net income for the first quarter, even though it writes annuities,
Executives at the Lansing, Michigan-based insurer are thanking Brooke Life Reinsurance Co., a captive reinsurance subsidiary.
Brooke Life Reinsurance, or Brooke Re, now reinsures some of Jackson's variable annuity benefits guarantees against the effects of ups and downs in the investment markets.
Because of the Brooke Re market risk benefits hedging cushion, Jackson was able to report $802 million in net income, based on U.S. generally accepted accounting principles, for the first quarter, on $340 billion in assets, compared with $1.5 billion in GAAP net income on $330 billion in assets for the first quarter of 2023.
Net income moved in the same direction as pretax operating earnings, which rose to $389 million from $302 million.
"Jackson now has more intuitive, predictable and stable financial results that better capture the healthy economics and earnings power of our large and profitable book of business," Laura Prieskorn, Jackson's chief executive officer, told securities analysts last week during a conference call.
What it means: GAAP accounting rules that were supposed to make U.S. life and annuity issuers' finances more transparent ended up muddying the financial picture so much that securities analysts and financial strength rating analysts have mostly stopped using GAAP net income as a major performance indicator.
Jackson's Brooke Re move shows that life and annuity issuers are coming up with ways to make new net results easier to compare with the old net results posted before the accounting rules changed.
Long-Duration Targeted Improvement: Rating analysts and others once worried that life and annuity issuers were failing to account properly for changes in the market value of their investments and benefit promises.
Insurance regulators and the Financial Accounting Standards Board moved to require insurers to put more and more of the estimated market-related changes in key values in earnings.
The newest major change, the FASB Long-Duration Targeted Improvement guidelines, requires insurers to put estimated changes in the value of long-lasting insurance and annuity benefits promises in earnings. Big, publicly traded companies had to apply the LDTI rules in earnings starting after Dec. 15, 2022.
LDTI authors hoped the new rules would help investors and analysts understand how changes in interest rates, stock prices and other factors were affecting life and annuity issuers' finances.
Since the rules took effect, many large life insurers have reported net income and net loss figures exceeding $1 billion in either direction, even though operating earnings, which excluded the effects of the "mark to market" factors, were relatively stable.
Securities analysts rarely mention the net results during the quarterly calls insurers hold to discuss their earnings. The analysts now focus mainly on the insurers' operating earnings.
