A.M. Best Affirms Credit Ratings of Jackson National Life Insurance Company and Its Affiliates
October 26, 2016 by AM Best
FOR IMMEDIATE RELEASE
OLDWICK – OCTOBER 26, 2016
A.M. Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating 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 Long-Term Issue Credit Ratings (Long-Term IR) of “aa-” on the notes issued under JNL’s funding agreement-backed securities programs and the Long-Term IR of “a” on JNL’s existing $250 million 8.15% surplus notes. The outlook of all of these Credit Ratings (ratings) is stable. All companies above are headquartered in Lansing, MI. (Please see below for a detailed listing of the Long-Term IRs.)
The ratings reflect JNL’s strong market position in the individual variable annuity (VA) arena, historically profitable operating results and 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. As a leading provider of individual VA sales, JNL has strong asset/liability management capabilities, with strong sales volumes, along with historically favorable earnings, enabling the company to organically fund its growth and maintain an adequate risk-adjusted capitalization. In addition, earnings have supported significant shareholder dividends to its parent, totaling more than $1.4 billion over the past five years. In return, Prudential has provided support to JNL on an as needed basis, through capital contributions and internal reinsurance.
The group’s strong market position in the U.S. VA market is supported by the expansion of multiple distribution outlets and product innovation. In addition to strong sales, the group has positive annuity net flows and derives significant fee income from its separate account asset base, which exceeded $134 billion in 2015. JNL’s strong sales reflect, in part, the benefit of rising equity markets and reduced competition as a number of its peers have either ceased or scaled back marketing VA products while at the same time, altering their product design or benefit features.
JNL’s positive rating factors are tempered by industry wide regulatory risk with respect to the U.S. Department of Labor ruling which will likely place continued pressure on top line revenue growth as a substantial portion of JNL’s VA sales and fixed indexed annuity sales are qualified. Additionally, there has been some recent deterioration in statutory capital in 2016, due in part to a recent shareholder dividend, elevated federal income taxes and a permitted practice related to VA hedging activities. A.M. Best notes that JNL’s hedge program has been efficient and effective; however, 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 and capital results have declined in 2016 primarily due to an increase in VA reserves and a permitted practice whereby unrealized gains related to interest rate hedging activities do not flow to the capital account on a statutory basis. However, given the importance of JNL to its parent, A.M. Best believes that the parent would continue to contribute capital support if needed.
JNL’s liability profile remains significantly less diversified than many of its similarly rated peers due to its heavy concentration in retail and institutional annuities with much larger exposure to equity and interest rate risks. While investment spreads remain acceptable, there is continued spread compression due to the extended low interest rate environment reflecting the company’s high degree of embedded interest rate risk. Conversely JNL faces the potential for disintermediation risk in a rapidly rising interest rate environment. Investment risk has declined as measured by A.M. Best’s high risk assets to capital over the five-year period, although JNL continues to maintain an elevated level of real estate assets on both an absolute and percentage of capital basis, which could expose it to significant impairments during a real estate market downturn.
A negative rating action could be taken if the current level of rating enhancement/support from Prudential diminishes. A negative rating action could be taken if risk-adjusted capitalization declines materially or if A.M. Best’s view of Prudential’s credit profile declines.
The following Long-Term IRs 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 Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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| Rosemarie Mirabella Director +1 908 439 2200, ext. 5892 rosemarie.mirabella@ambest.com William Pargeans |
Christopher Sharkey Manager, Public Relations +1 908 439 2200, ext. 5159 christopher.sharkey@ambest.com Jim Peavy |
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