Fitch Affirms Jackson's Ratings; Outlook Revised to Stable
(The following statement was released by the rating agency)Fitch Ratings-Chicago-17 March 2021:
Fitch Ratings has affirmed the Insurer Financial Strength (IFS) Ratings of Jackson National Life Insurance Company and Jackson National Life Insurance Company of New York (Jackson) at 'A'. At the same time Fitch has also affirmed the 'BBB+' Issuer Default Rating (IDR) assigned to Jackson Financial, Inc. The Outlook is revised to Stable from Negative for all ratings.
Key Rating Drivers
The revision of the Outlook to Stable from Negative reflects Fitch's view that the economic impact of the pandemic on Jackson will be limited, particularly as equity markets have returned to a period of more normalized volatility. While the potential for modest credit impairments remains, Fitch expects that both earnings and capital will remain in line with, or exceed rating expectations. Longer-term concerns continue to include the potential for historically low interest rates that persist for multiple years.
The affirmation of Jackson's ratings reflects the company's strong, but volatile, financial performance, a concentrated focus on the variable annuity (VA) market and an improving capital position. Jackson's ratings also continue to reflect the planned demerger with Prudential PLC which is expected to occur in 2021. Based on Prudential PLC's announced plan, Fitch views the strategic importance of Jackson as "Limited" within the group and as a result, Jackson no longer receives one notch of uplift based on parental support and is rated at its stand-alone credit profile (SACP).
Jackson's financial performance remains strong, measured on both a GAAP and statutory accounting basis, although the company's earnings profile remains susceptible to pressures associated with equity market performance and a continued low interest rate environment.
Fitch views Jackson's capitalization and leverage as strong, and Jackson's 2020 transaction with Athene to reinsure Jackson's in-force block of fixed and fixed-indexed annuities, as well as a $500 million equity contribution by Athene, is expected to have materially improved Jackson's capital position, and the company is expected to score in the 'Strong' category of Fitch capital model on a pro-forma basis.
Jackson's financial leverage remained low through 3Q20, however, the company announced its intention to issue debt in conjunction with its planned separation from Prudential PLC. Going forward Fitch expects that Jackson's financial leverage will approach industry medians, but remain below 25%.
Fitch assesses Jackson's business profile as in line with the broader North American life insurance industry. Fitch views the company's market position favorably, as Jackson remains a market leader in the market and sales of VA products. Fitch views Jackson's diversification less favorably given the lack of diversity in its liability profile, which was further reduced as the company reinsured its fixed annuity block of business to Athene in 2Q21. While Jackson will continue to write new fixed annuity business, it will take some time before Fitch's view of diversification is impacted materially.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
--Significant diversification of Jackson's liability profile;
--Improved capital metrics for Jackson, as measured by a Prism capital score consistently above 'Strong'.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
--An increase in the degree of reported financial performance volatility driven by equity market volatility, a low-for-long interest rate environment and broader macroeconomic-related headwinds;
--A decline in Jackson's Prism capital-model output consistently below 'Strong', along with declines in reported risk-based capital ratio and profitability;
--Financial leverage post separation consistently in excess of 25%;
--Fixed charge coverage that consistently falls below 7x after Jackson's separation from Prudential PLC;
--Unexpected economic or operational disruptions as a result of Jackson's transition to a stand-alone company.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579]
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Jackson Financial Inc.; Long Term Issuer Default Rating; Affirmed; BBB+; Rating Outlook Stable
Jackson National Life Insurance Company; Long Term Issuer Default Rating; Affirmed; A-; Rating Outlook Stable
; Insurer Financial Strength; Affirmed; A; Rating Outlook Stable
; Short Term Insurer Financial Strength; Affirmed; F1
----subordinated; Long Term Rating; Affirmed; BBB+
Jackson National Life Global Funding
----senior secured; Long Term Rating; Affirmed; A
Jackson National Life Insurance Company of New York; Insurer Financial Strength; Affirmed; A; Rating Outlook Stable
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