Problems at Jackson Financial ($JXN)

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Federal regulators and credit investors have zeroed in on billionaire financier Mark Walter and TWG Global, where life insurance reserves were allegedly funneled into Walter-linked side businesses without proper disclosure. But while Wall Street debates whether Walter was an isolated case of someone playing fast and loose with the rules governing retiree nest eggs, skeptics are asking a far more dangerous question: Does the rot go deeper?

A new report by QVT Financial, the investment firm and family office, suggests the problems in the insurance industry might not be limited to Walter and TWG. The report, a copy of which was shared with The Bear Cave, centers on Jackson Financial ($JXN), which sells its products through its regulated subsidiary, Jackson National Life, or JNL. As of the date the report was sent to Hunterbrook, QVT held short positions in Jackson’s debt and equity and stands to profit if their prices fall. QVT’s analysis argues that JNL has relied upon quirks in insurance accounting and regulation to make itself look more solvent than QVT believes it to be — and to reward shareholders, not policyholders. The Bear Cave reviewed the report in detail and spoke to a wide range of sources about Jackson, JNL, and the issues identified in the report.

Jackson is not a marginal player. It is the largest issuer of traditional variable annuities in the United States and the eighth-largest life insurer by total assets, with $287 billion in customer account values at the end of 2025. Founded in Jackson, Michigan, in 1961, it is one of the state’s most prominent financial services companies with nearly 4,000 employees, and its Michigan regulator is the one entrusted with making sure it can keep its promises.

Those promises are a big deal. Many of Jackson’s customers hold contracts that guarantee them income for life, no matter what markets do. Yet that guarantee is only as good as the insurer standing behind it. While underlying variable annuity investment portfolios sit in segregated accounts, the lifetime income check relies on the insurer’s own solvency.

QVT’s argument sheds light on the complicated machinery and patchwork regulation of the insurance industry, challenging the durability of a company Wall Street has hailed as an extraordinary success story. Spun off from British insurer Prudential in 2021, Jackson started trading at about $25 a share. It now trades at over $130, a fivefold return more akin to that of a high-flying tech company than a sleepy life insurer. A major part of the appeal is its capital return: During its time as a public company, Jackson has repurchased roughly 37 million shares — over a third of its initial shares outstanding — and sent $1 billion in cash dividends to shareholders.

The Bear Cave can now report an underexamined feature of the machine behind Jackson’s success. Like many insurance companies, Jackson has a captive reinsurer, a dedicated, private entity set up, in Jackson’s case, to self-insure its income guarantees to customers. Buried deep in its statutory filings, JNL discloses an unconventional arrangement with that captive, Brooke Re, which is obligated to pay JNL back the losses associated with hedging its variable annuity guarantees.

Brooke Re’s existence is widely known, but the terms of the hedging cost payback arrangement have not been widely discussed by analysts covering Jackson. Instead of paying JNL every quarter in full for losses incurred in that quarter, Brooke Re stretches its tab over three years with quarterly payments.

It amounts to an institutional installment plan. Because markets have soared, those deferred bills have stacked up into an estimated net receivable of $6.8 billion at the end of the second quarter of 2026. That is 137% of JNL’s $4.971 billion statutory surplus, its primary regulatory capital cushion.

“We have never encountered a margin arrangement like this,” QVT writes.

JNL’s statutory surplus, which includes the Brooke Re receivable, is what supported Michigan regulators’ approval of “extraordinary dividends” in both 2024 and 2025, releasing cash to public shareholders. And JNL’s balance sheet was recently improved with a $500 million investment from TPG dedicated to a new Brook Re subsidiary. But QVT argues that the surplus is itself the result of accounting maneuvers, and that Brooke Re may lack the capital to honor its obligations without dramatic changes in the way that Jackson operates.

Jackson has explained the arrangement by stating in regulatory filings that Brooke Re “serves the interests of policyholders by protecting statutory capital.” But in practice, the Brooke Re structure allows JNL to hold less statutory capital with the benefits largely accruing to shareholders, not policyholders, QVT argues. Notably, that line is gone from Jackson’s most recent financial filing.

Jackson bulls argue the company has no solvency issues — and that it would take a radical change in policyholder behavior for the company’s balance sheet to be called into question. But Jackson’s record of estimating policyholder behavior has also been underwhelming.

This matters because one of Jackson’s most important assets is an accounting abstraction: the estimated present value of future fees assigned to its guarantees, less the benefits it expects to pay. Called the market risk benefits, or MRB, that value supports the capital position of Brooke Re, which reinsures the variable annuity guarantees issued by JNL.

From the fourth quarter of 2022 through the second quarter of 2026, actual policyholder behavior — including how often policyholders surrender the annuity, which triggers an immediate cash payout and cuts off the future fees Jackson would otherwise collect — reduced the modeled value of the MRB by $2.066 billion more than expected, according to QVT’s analysis. Additional reviews of the company’s assumptions indicated another $1.602 billion of markdowns from 2022 through 2025.

QVT argues that these repeated missed estimates call into question Brooke Re’s ability to stand on its own — and the strength of the regulated insurer relying on it.

HOW THE MONEY MACHINE WORKS

Jackson’s core product is fairly straightforward, at least for customers. A variable annuity is an insurance contract in which the money a customer invests grows on a tax-deferred basis, and many buyers pay extra for a guarantee that they will be able to withdraw a specified amount for life.

Customers can also surrender and walk away with their money, giving up the guarantee. The right to leave is critical to the entire risk equation.

Managing these contracts, however, can be extremely challenging. Insurers promise long-dated guarantees supported by equity- and rate-sensitive instruments. To manage their risks, they engage in complex hedging programs that can be costly and imperfect — particularly during volatile or illiquid markets.

Overall, they are short the market in order to hedge the risk that Jackson’s equity investments supporting the guarantees drastically fall in value, which in turn makes rising markets costly for the hedges. As Jackson’s CFO and soon-to-be CEO Don Cummings put it on the third-quarter 2025 call, “higher equity markets typically result in losses on our variable annuity hedges.”

The market risk is compounded by uncertain policyholder behavior: Lapse, withdrawal, and benefit-utilization rates can diverge materially from actuarial assumptions, changing the duration and value of guarantees in ways that financial hedges cannot fully offset.

The industry’s graveyard is crowded with insurers wrecked by this very mismatch. In the late 1990s and early 2000s, carriers layered so-called living-benefit guarantees — the most common of which give policyholders the right to withdraw a certain amount every year, regardless of how their portfolios perform — onto variable annuities. Carriers underpriced and poorly hedged them. The 2008 crash exposed the fault lines: Aegon, Allianz, AXA, Delaware Life, John Hancock, and Voya had to increase their reserves on variable annuities by amounts ranging from 27% to 125% of their total equity.

The casualties mounted swiftly. For example, Hartford required rescue financing from the Troubled Asset Relief Program in June 2009 after receiving a $2.5 billion infusion from Allianz.

As rivals cast off living-benefit guarantees and dismantled their books, JNL took advantage. At year-end 2025, 72% of JNL’s $243 billion in variable annuity account value sat in a product called Guaranteed Minimum Withdrawal Benefits for Life: The customer is promised the ability to withdraw a set percentage of the benefit base, say 5%, every year for the rest of their life, even if terrible markets drive the account value to zero. The costs of this product for consumers are significant: QVT describes a total annual fee burden of roughly 3.5%.

A soaring market makes that guarantee less expensive for JNL, because the increase in the customer’s accounts covers the withdrawals they’re owed, but it also makes the hedges JNL uses to mitigate its own risk incredibly costly. The scale is staggering: By QVT’s math, every 1% rally in the S&P 500 costs the hedge book roughly $200 million.

The hedges collide with a quirk of insurance accounting. Jackson reports to shareholders under GAAP, which lets it offset hedge losses against changes in the value of the MRB, which, you’ll recall, represents the present value of future fees assigned to the guarantees, less benefits expected to be paid out.

In a rising market, the MRB becomes less of a liability because the expected benefits shrink, and it can even turn into an asset if expected future fees outweigh them. But JNL answers to its regulator under statutory accounting, which essentially refuses to let an insurer count its chickens before they hatch. Yet that is precisely what something called “modified GAAP” allows Brooke Re to do: use future fee streams to offset the cash bleeding from today’s hedges. As an industry source put it, “The idea is that if every profitable policyholder leaves, it’s still money good for the people who remain.” The statutory accounting rules matter because Jackson depends largely on JNL for the cash it returns to shareholders, and JNL’s ability to pay dividends rests on its statutory surplus. When the market rises and the hedges bleed, those rules make that surplus shrink.

To stop the statutory-capital bleeding, Jackson turned to an accounting escape hatch: Brooke Re, a wholly owned Michigan captive announced at the end of 2023.

On January 1, 2024, JNL ceded certain guarantee liabilities of its variable annuity book to Brooke Re, which, unlike JNL, received regulatory permission to use modified GAAP. The idea is that the captive can offset hedge losses with MRB markups, and that JNL’s statutory capital becomes more stable.

The analysts who cover Jackson generally seem to accept the company’s explanation for Brooke Re.

But no one on the outside can fully see inside Brooke Re to verify any of this because of an odd quirk of the insurance industry: Captive reinsurers are allowed to file their financials confidentially, forcing analysts and investors to rely on Jackson’s limited disclosures and take the regulator’s oversight on faith.

The Michigan insurance regulator, the Department of Insurance and Financial Services, responded to The Bear Cave’s requests under the Freedom of Information Act for correspondence between the regulator and Jackson about establishing Brooke Re, but declined to provide the relevant documents based on a range of cited exemptions. The DIFS also responded to The Bear Cave’s request for comment on this reporting, stating in part, “Michigan captives must meet all standards set forth in the Michigan statutes, and the department maintains a robust review process for all new domestic captives.” Jackson did not respond to multiple requests to comment on this reporting.

PAYING THE BILL, ONE-TWELFTH AT A TIME

From an overlooked source, JNL’s statutory filings in Lansing, QVT pieced together what Jackson had not fully explained to analysts. The documents lay bare the mechanics governing Brooke Re.

Start with how Brooke Re was capitalized. Jackson launched the entity with $1.9 billion of equity, QVT notes, which management claimed could survive “a 98th percentile stress scenario,” like the last great market plunge in 2008. But only $700 million of that was cash and liquid securities. The remaining $1.17 billion was the MRB itself, a model-based estimate of profits Jackson expected the guarantees would generate someday. As one analyst put it on a 2024 call, the guarantee asset “doesn’t really feel like real equity.”

That paper-thin cushion may explain why Jackson built an internal installment plan. JNL must pay its Wall Street counterparties in cash in real time to settle hedging trades. Brooke Re is supposed to make JNL whole for those payments. Instead, according to the statutory filings, each quarter’s net hedge result is settled over three years: one-twelfth now, the rest later.

In Brooke Re’s very first quarter of operation, the hedges lost $2.85 billion, according to QVT. One-twelfth was allocated to the current settlement, netted against insurance amounts owed in the other direction; JNL booked the remaining $2.61 billion as an IOU. The filings are precise about this: QVT checked the disclosed hedge loss against the receivable on JNL’s balance sheet and found the twelve-quarter math matched to within one dollar. As equity markets marched upward, cumulative hedge losses reached $12.4 billion by QVT’s estimate.

By QVT’s math, if Brooke Re had paid its hedge bills in full each quarter rather than kicking the can down the road, it would have needed $5.8 billion in liquidity on day one to cover losses through mid-2026. It launched with $700 million, less than an eighth of that.

The closest management came to describing the deferral that QVT could find came on a third-quarter 2024 earnings call: “Each quarter, we settle up on the results of the business with Brooke Re.” QVT is withering on this point. “‘Settling up’ in normal parlance,” the firm writes, “e.g. settling up a bill at a restaurant, means paying 100% of what is due.” Here, only one-twelfth of the new quarter’s hedge result enters that quarter’s settlement, though installments from earlier quarters also come due.

The disclosures evolved in mid-2026, when JNL revealed that Brooke Re pays interest on its growing tab, without specifying the rate or amounts.

Jackson has declined to answer specific questions about Brooke Re’s level of hard assets. Investors seeking proof of Brooke Re’s liquidity have had to rely on management assurances. “One of the questions that we get most often from investors is how do you get comfort that Brooke Re is well capitalized?” Jefferies’ Suneet Kamath asked on a call discussing Jackson’s 2024 results, noting “some reluctance in terms of providing additional disclosure.” Management has repeated that Brooke Re is “self-sustaining,” according to QVT. Pressed in early 2026 for the actual amount of cash in the captive, an executive answered: “I’m not going to give you the exact number, but I would just say that the $700 million has grown pretty significantly.”

Behind the confident rhetoric lies an existential question. Can Brooke Re actually pay JNL what it owes?

That is the question our sister publication The Bear Cave examines for paid readers.

‍To read our full analysis, subscribe here.

Authors

Bethany McLean is the investigative journalist who exposed the notorious Enron fraud while a reporter at Fortune. She is a contributing editor at Vanity Fair who authored The Smartest Guys in the Room and several other books. She began her career as an investment banking analyst at Goldman Sachs before moving into journalism.

Matthew Termine is a former corporate lawyer with significant experience advising companies operating within regulated industries. Matt led Hunterbrook’s investigation and reporting on United Wholesale Mortgage. In 2017, Matt was credited by the Wall Street Journal, among others, for identifying suspicious mortgage loan transactions that led to several successful criminal prosecutions, including that of a prominent political operative and the chief executive officer of a federally chartered bank. He is a graduate of Trinity College and Fordham University School of Law.

JD Jean-Jacques joined Hunterbrook from Goldman Sachs, where he worked as an investment banker. He was editor-in-chief of Howard University’s newspaper, The Hilltop, and wrote for The Exonian at Phillips Exeter Academy. Among other recognitions, JD was a White House Correspondents’ Association Scholar and was named Student Journalist of the Year by The National Association of Black Journalists. He graduated from Howard with a B.A. in history.

Editors

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a Master’s in Chinese and Japanese History from the University of California at Berkeley.

Vikas Kumar joined Hunterbrook from The Capitol Forum, where he led the corporate investigations team for a decade as a senior editor. He was previously an attorney at Gordon Feinblatt, a trial attorney for the Department of Justice, and a law clerk for a federal judge. He has a J.D. from University of Virginia School of Law and a bachelor's from Emory University. Vikas is based in Maryland.