Best’s News & Research Service - June 12, 2013 12:37 PM (EDT)
A.M. Best Affirms Ratings of Jackson National Life Insurance Company and Its Affiliates
OLDWICK, N.J. //BestWire// - A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and issuer credit ratings of “aa-” of Jackson National Life Insurance Company (Jackson), 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 ratings on Jackson’s existing funding agreement-backed securities programs and outstanding 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 companies and debt ratings.)
The ratings reflect JNL’s continued leading market position in the individual annuity arena, its favorable operating performance and somewhat reduced risk within its investment portfolio. JNL’s ratings also reflect the strength and support of its U.K.-based ultimate parent, Prudential plc [NYSE: PUK]. Prudential plc is an international financial services group with significant operations in Asia, the United States and the United Kingdom.
JNL continues to benefit from rising equity markets due to its concentration in variable annuities as several of its competitors have either ceased marketing variable annuities or have significantly changed their product designs. JNL’s annuity sales have also benefitted in recent periods from the ongoing distribution channel expansion, which has led to favorable variable annuity net inflows and a significant increase in assets under management. This has resulted in record earnings for the company on both a GAAP and IFRS basis. While A.M. Best believes that JNL’s hedging program has been effective, it generally does not mitigate the impact on statutory income. Hence, statutory operating results have been somewhat uneven, reflecting fluctuating variable annuity reserve requirements. A.M. Best notes that JNL’s inforce block of fixed annuities provides a partial offset to the interest rate exposure in the variable annuity block due to the fixed annuities’ exposure to rising rates.
Partially offsetting these positive rating factors is JNL’s high concentration of variable annuity business, which represents approximately 63% of total reserves. A.M. Best believes that variable annuities are a less creditworthy line of business compared to ordinary life insurance products. While the 2012 acquisition of Reassure America Life Insurance Company (REALIC) from Swiss Re almost doubled its life insurance reserves, A.M. Best believes JNL’s stand-alone credit profile remains highly exposed to the equity market sensitivity and spread-based liabilities. Additionally, the company maintains a relatively high allocation to real estate-related assets in its general account investment portfolio as commercial mortgage loans, residential mortgage-backed securities (RMBS), commercial mortgage-backed securities and real estate investment trust debt securities represent over three times capital and surplus. A.M. Best notes the recent decline in the percentage of commercial mortgages and non-agency backed RMBS, and that many of the structured securities within the portfolio are either government agency-backed or highly rated. JNL has also been reducing its exposure to below investment grade bonds over the past few years. Moreover, although the asset mix was a bit different from JNL’s, the credit profile of the acquired $9.8 billion REALIC investment portfolio was comparable.
A.M. Best believes that Jackson and its affiliates are well positioned at their current rating levels. Key rating drivers that may lead to a negative rating action include 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 plc.
The FSR of A+ (Superior) and the ICRs of “aa-” have been affirmed for the following:
-Jackson National Life Insurance Company
-Jackson National Life Insurance Company of New York
-Brooke Life Insurance Company
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.