A.M. Best Affirms Ratings of Jackson National Life Insurance Company and Its Affiliates
July 16, 2015 by AM Best
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 the financial strength and support of its ultimate parent, Prudential plc (Prudential) [NYSE: PUK]. Prudential is incorporated in England and Wales and, through its subsidiaries and affiliates, is one of the largest insurers in the United Kingdom and among the world’s leading financial services organizations. As the U.S. operating arm of Prudential, A.M. Best believes that JNL remains strategically important to the organization, adding diversification benefits to its overall business profile and contributing significantly to consolidated revenues and earnings. In recent years, JNL has delivered material sales growth along with strong statutory and GAAP earnings, which have allowed the company to organically fund its growth and maintain an adequate risk-adjusted capitalization, as well as contribute meaningful dividends to its parent. In return, Prudential has provided support to JNL as needed through capital contributions and internal reinsurance.
The ratings also reflect JNL’s strong market position in the individual annuity arena and profitable operating results. The group has increased 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 first in net flows and had approximately $127 billion of separate account assets as of year-end 2014. JNL has benefited 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.
Net operating results on both an IFRS and GAAP basis have been favorable in recent years primarily due to increasing VA fee income and positive earnings in the annuity spread and ordinary life business segments. 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 statutory and IFRS accounting results as a secondary consideration. As a result, statutory results have been somewhat volatile in recent periods, primarily due to fluctuating VA reserve requirements and derivative losses.
Partially offsetting these positive rating factors is JNL’s high concentration of annuity business, primarily VAs, which represents over two-thirds 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 VA sales are without guarantees, including Elite Access, Jackson’s investment-only variable annuity.
The company’s interest spreads may also 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 two times its capital and surplus. However, A.M. Best notes that the company’s general account investment portfolio is currently in a net unrealized gain position. A.M. Best also notes that JNL has reduced its exposure to below investment grade bonds and alternative investments in recent years as a percentage of capital and surplus.
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
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
