United States:
build on strength

Jackson National Planning Holdings
Curian Capital LLC PPMAmerica

‘Jackson’s strategy remains focused on providing value to its customers and driving shareholder value while operating within a conservative risk management framework. This approach has enabled us to successfully navigate the significant macroeconomic and financial market challenges of the last six years and ensured a continuation of our strong performance in 2013.’

Mike Wells
President and Chief Executive Officer


To find out more about Jackson www.jackson.com

Prudential’s strategy of ‘build on strength’ in the US is well established and continues to focus on:

  • Capitalising on the ‘baby-boomer’ retirement opportunities;
  • Maintaining a balanced product suite throughout the economic cycle;
  • Streamlining operating platforms, driving further operational efficiencies; and
  • Conservative, economic-based approach to pricing and risk management.

Performance highlights

New business profit

2013: £1,086m, compared to previous 5 years

IFRS operating profit1

2013: £1,302m, compared to previous 5 years

Net cash remittances

2013: £294m, compared to previous 5 years

* One-off release of excess surplus

Growth in statutory admitted assets

2013: US$170.9bn, compared to previous 5 years
  • Cash remittance of £294 million exceeded 2013 cash objective of £260 million
  • Continued strong returns on shareholder capital across all key financial metrics
  • Elite Access sales of £2,585 million (US$4,045 million) in first full year after launch, making Jackson the most successful player in the non-guarantee variable annuity market
  • Successfully managed sales of variable annuities with guarantees in line with risk appetite
  • Successfully integrated REALIC including achievement of financial targets
  • Awarded ‘World Class Certification’ by Service Quality Measurement Group and ‘Highest Customer Satisfaction by Industry’ award – the eighth consecutive year of recognition for customer service performance in these two categories

Market overview

A group of three people overlook the Golden Gate Bridge, San Francisco

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‘Baby-boomer’ retirement opportunities

The United States is the world’s largest retirement savings market with total assets in the annuity sector of over US$2.5 trillion2. Each year, many of the 77 million ‘baby-boomers’ reach retirement age, which is triggering a shift from savings accumulation to retirement income generation of more than US$10 trillion3 of accumulated wealth over the next decade. This demographic transition constitutes a significant opportunity for those companies that are able to provide the ‘baby-boomers’ with long-term retirement solutions.

US economic environment

In 2013, the US economy began to see early signs of improvements, with unemployment rates steadily decreasing, and the housing market continuing to show signs of recovery. Reflecting this, the S&P 500 Index rose 30 per cent, its best performance since a 31 per cent jump in 1997, and longer-dated Treasury yields also began to climb in 2013 ahead of the reduction in the Federal Reserve’s quantitative easing programme. While interest rates remained well below historical averages at year end, an upward move in Treasury yields, if sustained, would be beneficial to the financial performance of the US insurance industry.

Competitive landscape

We continue to see significant shifts in market share amongst the larger annuity participants. Jackson’s market share of annuities with living benefits has remained relatively steady, while some larger players have consciously pulled back and others are now re-entering the market. We have also seen a general trend of product changes in this market that have reduced investment flexibility and/or increased fees for optional benefits. Several insurers with challenging legacy blocks of variable annuity business continue to implement policy changes to help mitigate the risk of their back book of business, including fee increases on older benefits, changes to the availability of investment options, subsequent premium restrictions on in-force contracts and buy back offers to their existing policyholders. Despite positive demographic trends, these activities have the potential to lead to overall contraction in the industry, and likely further market share adjustments, as customers and distributors seek insurers that offer consistency, stability and financial strength.

Regulatory environment

The financial services industry continues to deal with a multitude of emerging regulatory initiatives in response to the financial crisis. Many of these broader financial services initiatives specifically impact the insurance industry. Within the insurance industry, we are seeing evolving supervisory structures, new global group supervision standards, focus on the reduction of systemic risk, and amplified focus on enterprise risk management as well as initiatives in the area of financial reporting. While discussions are clearly still under way across many initiatives, this is resulting in significant resources being expended across the industry. Finding the appropriate path through all of the regulatory changes clearly remains a challenge.

What we do and how we do it

Jackson’s long-term strategy consists of capitalising on the profitable growth opportunities created by the demands for retirement income products due to the demographic transitions within the world’s largest retirement market. Jackson takes a disciplined approach to this opportunity by leveraging its distinctive distribution capabilities and asset liability management expertise to offer prudently priced annuity products aligned with our risk appetite. We continue to see strong consumer demand for our products and will continue to drive product innovation as a way of meeting the needs of customers and generating shareholder value. With a long-term focus on balancing the needs of multiple stakeholders, Jackson has forged a solid reputation among advisers for financial stability, innovative products and market leading wholesale support. Our relentless pursuit of excellence has earned us a leading position within the industry.

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Product suite

Jackson develops and distributes products that address the retirement needs of our customers through various market cycles. These include variable annuities, fixed annuities, fixed index annuities, and separately managed accounts. As would be expected in the current, historically low interest rate environment, variable annuities continue to outsell fixed rate products. The main attraction of a variable annuity product is the optional lifetime guarantee where customers can access a stream of payments with downside protection while still being able to invest in a broad range of assets, as well as the benefit of tax deferral on the investment growth within the product. The breadth of our product offering, strength of our distribution relationships, and our ability to maintain financial stability through the crisis and remain as a consistent presence within the market, have resulted in Jackson being the number one4 writer of variable annuities in the US.

Additionally, Jackson developed and launched Elite Access in March 2012. Elite Access is a variable annuity without guarantees, offering customers tax deferred growth and access to a wide range of alternative investments. In less than two years after its launch, Elite Access is the eighth best-selling variable annuity product in the US. As of third quarter of 2013, Jackson offers three of the top 10 best-selling variable annuity products across the industry.

The success of Elite Access has helped increase the diversification of our product mix with 31 per cent (2012: 17 per cent) of our 2013 variable annuities sales not featuring living benefit guarantees. As a percentage of total sales, variable annuities with living benefit guarantees are at their lowest since 2008.

While sales of fixed annuities and fixed index annuities have been lower recently in line with the market, they still make up a significant portion of our balance sheet and earnings. Jackson stopped selling life insurance products in 2012; however, we continue to look for opportunistic ‘bolt on’ acquisitions to diversify our earnings and balance sheet risks further. Most recently, the purchase of Reassure America Life Insurance Company (REALIC) has contributed significantly, to shape Jackson’s earnings while helping to diversify Jackson’s overall risk profile. We continue to proactively balance value, volume, capital and balance sheet strength across our suite of product offerings which allows us to compete effectively throughout the economic cycle.

Variable annuity sales (US$bn)

2013: US$20.9bn, US$6.4bn without living benefits, US$14.5bn with living benefits

Elite access sales (US$m)

2013: US$4,045m, +201%

Distribution capabilities

Our distribution teams set us apart from our competitors within the markets in which we compete. Jackson’s wholesaling force is the largest in the industry, supporting thousands of advisers across multiple channels and distribution outlets. Our wholesalers provide extensive training to these advisers and in 2013 focused training efforts around its newest product, Elite Access, with a total of 374 Elite Access meetings and over 10,000 advisers in attendance. Training topics included alternative investments, economic updates and tax and trusts education.

National Planning Holdings, an affiliate of Jackson, is the seventh5 largest independent broker-dealer network in the country. Leveraging the collective strength of the four broker-dealers within the network, National Planning Holdings is able to meet the specific needs of three key distribution channels: independent representatives, financial institutions, and tax and accounting professionals. We offer registered representatives and investment advisers access to industry-leading mutual fund/asset management companies, insurance carriers, and to thousands of brokerage products. National Planning Holdings provides significant benefits for Jackson by being an outlet for Jackson products and providing market intelligence.

Curian is Jackson’s retail asset management arm, distributing investment solutions which include separate accounts, mutual funds, mutual fund wraps and exchange traded funds through an online platform. Curian gives financial advisers efficient access to a broad range of investment solutions that are developed with institutional-level investment manager due diligence, portfolio construction and asset allocation resources.

Operational efficiencies

We support our industry-leading distribution teams with award-winning customer service. Jackson was awarded by Service Quality Measurement Group, Inc. ‘World Class Certification’ in customer satisfaction and received the ‘Highest Customer Satisfaction by Industry’ award, achieving the top rating for the financial industry, for the eighth consecutive year.

High-quality information technology systems are critical for providing award-winning customer service. We leverage technology to minimise processing errors and reduce the time required to process new business and commissions. The flexibility of our information technology systems contributes to our ability to manufacture, distribute and service an unbundled product design unique to the industry.

This focus on our operational platforms, and the efficiencies achieved as a result, has provided us with among the lowest general and administration expense to asset ratio relative to competitors.

Disciplined approach

Jackson operates within a well-defined risk framework aligned with the overall Prudential Group risk appetite. The type and number of products we sell remains balanced with the acceptance of risks we retain. Our conservative and disciplined economic approach to pricing is designed to achieve both adequate returns on our products and sufficient resources to support our hedging programme.

Our hedge philosophy has not changed in 2013. Jackson is able to aggregate financial risks across the company, obtain a unified view of our risk positions, and actively manage net risks through economically-based hedging programmes. A key element of our core strategy is to protect the company from severe economic scenarios while maintaining adequate regulatory capital. We benefit from the fact that the competitive environment continues to favour companies with good financial strength ratings and a strong track record of financial discipline, both key elements of our long-term strategy.

Notes

  1. Comparatives adjusted for retrospective application of the accounting policy change for deferred acquisition costs implemented in 2012.
  2. According to LIMRA, US Individual Annuities Survey Participant’s Report Q3 2013.
  3. Source: US Census Bureau.
  4. Based on total annuity sales, LIMRA, US Individual Annuities Survey Participant’s Report Q3 2013.
  5. Investment News Broker-Dealer Rankings – April 2013 (as reported at the 2013 Investor Conference).
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