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 at 'A'.

Fitch has upgraded the short-term IFS rating of Jackson National Life Insurance Company to 'F1+' from 'F1'. Fitch has also affirmed Jackson Financial, Inc.'s Issuer Default Rating (IDR) at 'BBB+'. The Rating Outlook is Stable.

The affirmation of Jackson's ratings reflects the company's very strong but volatile financial performance, concentrated focus in the variable annuity (VA) market, strong capital position and the uncertain macroeconomic environment. The upgrade of Jackson's short-term IFS rating reflects an improved view of the company's short-term financial flexibility and liquidity positions.

Key Rating Drivers

Moderate Company Profile: Fitch views Jackson Financial Inc. and its insurance operating subsidiaries' company profiles as moderate and in line with the broader North American life insurance industry. Fitch's view is driven by the company's leading market position offset by Jackson's concentration in the VA market. More recently, the company began selling a registered indexed-linked annuity (RILA) product and still maintains a limited amount of fixed annuity (FA) sales.

Strong Capitalization: Fitch views Jackson's capitalization as strong, driven by an improvement in the company's Prism capital model score into the 'Strong' category as of YE 2022. This is a result of the company's recapitalization following its separation from Prudential plc. Jackson's traditional risk- and non-risk adjusted metrics are also strong, and the company's NAIC RBC ratio remained in line with expectations through the first half of 2023.

Financial Leverage: Financial leverage decreased to 17% at YE 22 as compared to 22% at YE21. Over the near term, financial leverage is expected to decline modestly following the company's March 2023 Series A preferred issuance, which receives 100% equity credit under Fitch's criteria. Additionally, Fitch expects the proceeds from the preferred issuance to pay down the maturing senior note due later this year. Longer term, financial leverage is expected to remain near current levels and consistent with companies rated in the 'A' category.

Very Strong Financial Performance: Jackson's financial performance remains very strong on both a GAAP and statutory accounting basis, although the company's earnings profile remains susceptible to pressures associated with equity market volatility and the potential for a prolonged or severe economic downturn. Jackson's reported GAAP net income is expected to continue to exhibit volatility as a result of the asymmetrical accounting treatment of VA reserving and hedging programs, although underlying operating performance will remain very strong.

Macroeconomic Environment: The current interest rate environment is expected to be a positive for underlying investment performance, but may lead to adverse policyholder behavior if rates move up significantly from current levels. Product guarantees which may benefit policyholder will likely reduce surrenders. A return to stressed conditions in the equity markets would modestly pressure financial performance as account values decline, although capital should remain strong as a result of Jackson's effective hedging program.

Short-Term Ratings: When issuing and maintaining short-term ratings, Fitch will more heavily weight the financial flexibility and liquidity subcomponents in its analysis. Following the completion of the company's demerger with Prudential plc and subsequent recapitalization, which Fitch considered completed following the issuance of its Series A preferred securities, Fitch reviewed and subsequently upgraded its view of Jackson's short-term financial flexibility. As a result, Fitch has upgraded Jackson National Life Insurance Company's short-term IFS rating to 'F1+'.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Significant diversification of Jackson's liability profile;

Strong capital metrics, including a Prism capital model 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 relative to the broader macroeconomic environment;

A decline in Jackson's Prism capital model score such that it is consistently below 'Strong', along with declines in the reported risk-based capital ratio;

Financial leverage above 25%;

Fixed-charge coverage consistently below 7x;

A decline in Fitch's view of Jackson's short-term liquidity or financial flexibility could lead to a downgrade of the short-term IFS rating.

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.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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