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' and the short-term IFS rating of Jackson National Life Insurance Company at 'F1'.

At the same time Fitch has also affirmed the 'BBB+' Issuer Default Rating (IDR) assigned to Jackson Financial, Inc. The Rating Outlook 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.

Key Rating Drivers

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

Strong Capitalization: Fitch views Jackson's capitalization as strong, driven an improvement in the company's Prism capital model score into the 'Strong' category as of YE 2021 as 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 estimated an NAIC risk-based capital (RBC) ratio of above 450% for its primary operating subsidiary as of June 30, 2022.

Financial Leverage: Financial leverage increased as a result of the company's 2021 separation from Prudential plc as the company established its standalone capital structure, and was 18% following Jackson's issuance of $750 million of senior unsecured notes in the second quarter of 2022. Financial leverage is expected to remain at or below current levels and in line with rating expectations and management's target of 20%-25%.

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 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.

Uncertain Macroeconomic Environment: The current rising rate environment is expected to be a positive for underlying investment performance, but may lead to adverse policyholder behavior if rates continue to rise. Product guarantees may help mitigate surrender activity. Continued stress in the equity markets will likely modestly pressure financial performance as account values decline, although capital should remain strong as a result of Jackson's effective hedging program, although a prolonged or severe recession could have a moderate impact.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Significant diversification of Jackson's liability profile;

Improved 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;

Unexpected economic or operational disruptions as a result of Jackson's transition to a standalone 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.

ESG Considerations

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.

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