A.M. Best Affirms Ratings of Jackson National Life Insurance Company and Its Affiliates
June 17, 2014 by A.M. Best
OLDWICK – JUNE 17, 2014
A.M. Best has affirmed the financial strength rating of A+ (Superior) and the issuer credit ratings of “aa-” of Jackson National Life Insurance Company, its wholly owned subsidiary, Jackson National Life Insurance Company of New York (together known as JNL) and its direct parent, Brooke Life Insurance Company. Additionally, A.M. Best has affirmed the debt ratings of “aa-“on the notes issued under JNL’s funding agreement-backed securities programs and the debt rating of “a” on JNL’s existing $250 million 8.15% surplus notes. The outlook for all ratings is stable. All companies above are headquartered in Lansing, MI. (Please see below for a detailed listing of the debt ratings.)
The ratings reflect JNL’s status as the U.S. operating arm of Prudential plc (Prudential) [NYSE: PUK]. Prudential is incorporated in England and Wales and, through its subsidiaries and affiliates, offers insurance and financial services throughout the world. A.M. Best believes that JNL remains strategically important to Prudential, adding diversification benefits to its overall business profile and contributing significantly to consolidated earnings. In recent years, JNL has delivered double-digit sales growth along with strong statutory and GAAP earnings, which have allowed the company to organically fund its growth and maintain sound risk-adjusted capitalization, as well as contribute meaningful dividends to its parent.
JNL continues to increase its leading share of the U.S. variable annuity (VA) market through the expansion of multiple distribution outlets and product innovation. In addition to increasing VA sales, the group ranks number one in net flows and had approximately $109 billion of separate account assets as of year-end 2013. JNL continues to benefit from rising equity markets and reduced competition as many of its peers have either ceased or scaled back marketing VA products while, at the same time, altering their product design and/or benefit features. A.M. Best believes the risk profile of JNL’s VA block is somewhat less compared to its peers as the vast majority of its annuities were issued in the years following the financial crisis. Moreover, JNL’s variable annuity account balances in aggregate are currently above the guaranteed amount for both its GMDB and GMWB riders.
Net operating results on both an IFRS and GAAP basis have been favorable in recent periods primarily due to increasing variable annuity fee income and positive earnings in the ordinary life segment. While A.M. Best notes that JNL’s hedge program has been effective and efficient, its primary goal is to hedge on an economic basis with accounting as a secondary consideration. As a result, statutory results have been somewhat volatile in recent periods, primarily due to fluctuating VA reserve requirements.
Partially offsetting these positive rating factors is JNL’s high concentration of annuity business – mainly VAs — which represent over 65% of total reserves. As a result, earnings are highly correlated to the performance of the equity markets and could be pressured during an extended bear market. However, A.M. Best notes that an increasing percentage of variable annuity sales are without guarantees, including Elite Access, Jackson’s investment-only variable annuity. The company’s interest spreads may experience pressure in the near to medium term if rates remain at current levels. Furthermore, the company maintains a relatively high exposure to real estate related assets in its general account investment portfolio as commercial mortgage loans (CML), commercial mortgage-backed securities and residential mortgage-backed securities (RMBS) represent over three times its capital and surplus. However, A.M. Best notes that many of the structured securities within JNL’s portfolio are either government agency backed or highly rated, and that the percentage of these riskier assets has been declining in recent periods. JNL has also recently reduced its exposure to below investment grade bonds and alternative investments as a percentage of capital and surplus.
A.M. Best believes positive rating actions for JNL are unlikely in the foreseeable future. Negative rating actions may occur should JNL experience a material decline in risk-adjusted capitalization and/or a change in A.M. Best’s view of the strategic importance of JNL to Prudential.
The following debt ratings have been affirmed:
Jackson National Life Insurance Company—
– “a” on $250 million 8.15% surplus notes, due 2027
Jackson National Life Funding, LLC–“aa-” program rating
– “aa-” on all outstanding notes issued under the program
Jackson National Life Global Funding–“aa-” program rating
– “aa-” on all outstanding notes issued under the program
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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