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Rating Action:

Moody’s affirms Jackson’s ratings after demerger announcement; outlook changed to negative

29 January 2021


New York , January 29, 2021 - Moody's Investors Service has affirmed Jackson Financial, Inc.'s ("Jackson") Baa2 issuer rating as well as the A2 insurance financial strength (IFS) rating for the rated operating insurance subsidiaries of Jackson National Life Insurance Company and Jackson National Life Insurance Company of New York. This follows the announcement by Prudential Public Limited Company (Prudential, senior debt A2 negative) to separate Jackson through a demerger, whereby shares in the company would be distributed to Prudential shareholders. Moody's has changed the outlook on Jackson to negative from stable.

Please refer to the complete list of affected ratings at the end of this press release.

RATINGS RATIONALE

According to Moody's, the affirmation of Jackson's ratings reflects the expectations of Prudential to fully separate the US business from the group during the first half of 2021. The rating agency added that the rating action contemplates no significant change in Jackson's current strategy, which could have an impact on Jackson's credit profile. In addition, Jackson's ratings are based on its leading position in the US asset accumulation business, as well as its multiple distribution channels, and efficient back office infrastructure. Jackson has strong asset quality, and good historical profitability that benefits from a successful hedging strategy. However, it has significant exposure to earnings and capital volatility from equity markets and must manage capital requirements that are sensitive to policyholder behavior, equity market returns, and interest rates.

The negative outlook reflects the lower than expected capitalization and the challenges the company faces in building capital, lowering proforma leverage and diversifying an inforce block of liabilities concentrated in variable annuities (VA) as it plans to separate from Prudential. Jackson's capital adequacy considers the NAIC company action level (CAL) RBC ratio as an important input into the ratings. While the target proforma NAIC CAL RBC ratio of 425% - 450% at the point of separation is considered to be strong, a higher level of regulatory and economic capital is needed to offset the potential volatility in earnings and capital due to the high concentration in VA, as well as the economic exposure to interest rate risk. One example of volatility in capital adequacy is the announced one-time revision to hedge modeling embedded within the statutory VA model assumptions that reduced the NAIC CAL RBC ratio by around 80 points.

Although the company is expected to maintain good prospective financial flexibility, the current position is derived from that of Prudential. Jackson's announced pro-forma financial leverage of 25% – 30% post separation from Prudential is higher than peers in the industry. We expect adjusted financial leverage to decrease over time, and Jackson to maintain a solid hedging program to mitigate and proactively manage the risk associated with its VA block.

Moody's will consider the successful execution of the operation of the US business as a standalone entity, the performance of the business, and the company's ability to improve capital adequacy and financial flexibility. Moody's believes that the coronavirus-driven economic disruption and ultra-low interest rates will stress most aspects of life insurers' financials, including those of Jackson. This includes investments, reserves and capital adequacy. Most life insurers, including Jackson, as noted, start with healthy capital and asset quality to weather this storm over the near term, but these conditions will weaken their creditworthiness if they persist.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given the negative outlook, there is limited upward pressure on Jackson's ratings. A combination of the following drivers could return Jackson's outlook to stable: 1) Successful execution of the operation of the US business as a standalone entity, reflected by maintenance of business profile and more balanced growth in new product sales with less emphasis on VAs with living benefits, 2) Strong capitalization, with demonstrated resilience / protection of economic and regulatory capital ratios following a stress scenario, 3) VAs, excluding those with no guarantees or only return of premium death benefit guarantees, becoming less than 50% of company's total statutory liabilities (metric adjusted for equity market movements and reflecting mix of liabilities between VAs with/without guaranteed benefits - products with fewer/less risky guarantees place less negative pressure on the company's risk profile), and 4) Adjusted financial leverage ratio (excluding AOCI) consistently around or less than 20%.

The following factors could result in a downgrade of Jackson's ratings: (1) NAIC RBC ratio falling below 425% at Jackson, excluding VOBA, and reduced ability to withstand a stress scenario associated with the VA business, 2) VAs, excluding those with no guarantees or only return of premium death benefit guarantees, becoming greater than 60% of the company's total statutory liabilities (metric adjusted for equity market movements and reflecting mix of liabilities between VAs with/without guaranteed benefits - products with fewer/less risky guarantees place less negative pressure on the company's risk profile), or 3) Adjusted financial leverage ratio (excluding AOCI) consistently above 25%.

The following ratings were affirmed; outlook changed to negative from stable:

Jackson Financial, Inc.: Long term issuer rating at Baa2

Jackson National Life Insurance Company: Insurance Financial Strength at A2; Surplus Notes at Baa1(hyb); and Short-term Insurance Financial Strength at P-1

Jackson National Life Funding, LLC: Backed Senior Secured Medium-Term Note Program at (P)A2

Jackson National Life Global Funding: Senior Secured Regular Bond/Debenture at A2; Senior Secured Medium-Term Note Program at (P)A2; and Senior Unsecured Regular Bond/Debenture at A2

Jackson National Life Insurance Co of New York: Backed Insurance Financial Strength at A2

Jackson National Life Insurance Company, the primary operating company of Jackson, provides insurance protection, retirement, and investment products in the United States. As of September 30, 2020, the company reported statutory assets of $260.7 billion and statutory capital and surplus of $6.9 billion.

The principal methodology used in these ratings was Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bob Garofalo
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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