Slide 1: Chad Myers, US
Chad Myers US
Slide 2: Annuity Industry Trends
Annuity Industry Trends Jackson VA Asset Growth vs Variable vs Fixed Sales Captive Share of VA Sales Industry 40 40% 5.00% 35 Fixed + Indexed 2.50% 30 35% Variable 0.00% 25 20 30% -2.50% Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Jackson Industry Source: LIMRA/SR
Slide 3: Consistent Variable Annuity Volumes
Consistent Variable Annuity Volumes $ in billions 10 9 8 7 6 5 4.8 4.4 4.5 4.2 4.3 • Jackson’s quarterly living benefit VA sales 4.0 4.4 4.0 4 3.7 3.9 3.7 4.0 have fluctuated around the $4bn level over 3.7 3.5 3.5 3.7 2.8 3.1 3.1 the last several years 3.3 3 3.3 3.3 3.1 Quarterly Average = $3.8bn 2
Slide 4: Strong Variable Annuity Net Inflows
Strong Variable Annuity Net Inflows Variable Annuity Quarterly Gross Sales and Benefits/Lapses 2011 – 3Q16 ($ billions) 7.0 • Despite the reduction in sales volumes, variable annuity net sales have continued to 6.0 be positive 5.0 • 3Q 2016 YTD surrenders and benefits have been only 60% of total pre
Slide 5: Separate Account Growth
Separate Account Growth Separate Account Assets, $bn • Separate account growth has been driven over time by a combination of both positive Cumulative net flows $83bn 32.7 net flows and equity market growth 4.6 12.1 • Very strong net flows relative to the size of the book in the years following the f
Slide 6: Economic Backdrop
Economic Backdrop S&P 500 10-year Treasury Rate 30-year Treasury vs 30-year Swap 2,500 3.5 4.0 3.0 2,000 3.5 2.5 1,500 3.0 2.0 1.5 1,000 2.5 1.0 500 2.0 30-Year Treasury Rate 0.5 30-Year Swap Rate 0 0.0 1.5 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-11 Se
Slide 7: Economic Value of VA Book Has Improved Over Time
Economic Value of VA Book Has Improved Over Time As of 2011 Year-End • Includes guarantee fees only 2,000 • Uses prudent best estimate assumptions (AG43, C3P2) 1,800 • 5% gross return is well below historical average market return 1,600 • Ignores guarantee fees collected to date as well as 1,400 Gua
Slide 8: Economic Value of VA Book Has Improved Over Time
Economic Value of VA Book Has Improved Over Time As of 2012 Year-End 2,000 1,800 1,600 Time PV of PV of Net PV Guarantee Fees (excludes base contract fees) Period Fees Benefits 1,400 Benefits 2011 $3.0bn ($0.5bn) $2.5bn 1,200 2012 $4.3bn ($0.4bn) $3.9bn 1,000 2012 Key Data Points 800 Separate 10-Yr
Slide 9: Economic Value of VA Book Has Improved Over Time
Economic Value of VA Book Has Improved Over Time As of 2013 Year-End 2,000 1,800 Time PV of PV of Net PV 1,600 Period Fees Benefits 1,400 Guarantee Fees (excludes base contract fees) 2011 $3.0bn ($0.5bn) $2.5bn Benefits 2012 $4.3bn ($0.4bn) $3.9bn 1,200 2013 $5.8bn ($0.4bn) $5.4bn 1,000 2013 Key Dat
Slide 10: Economic Value of VA Book Has Improved Over Time
Economic Value of VA Book Has Improved Over Time As of 2014 Year-End 2,000 1,800 Time PV of PV of Net PV 1,600 Period Fees Benefits 2011 $3.0bn ($0.5bn) $2.5bn 1,400 Guarantee Fees (excludes base contract fees) 2012 $4.3bn ($0.4bn) $3.9bn Benefits 2013 $5.8bn ($0.4bn) $5.4bn 1,200 2014 $7.3bn ($0.7b
Slide 11: Economic Value of VA Book Has Improved Over Time
Economic Value of VA Book Has Improved Over Time As of 2015 Year-End 2,000 1,800 Time PV of PV of Net PV Period Fees Benefits 1,600 2011 $3.0bn ($0.5bn) $2.5bn 2012 $4.3bn ($0.4bn) $3.9bn 1,400 Guarantee Fees (excludes base contract fees) Benefits 2013 $5.8bn ($0.4bn) $5.4bn 1,200 2014 $7.3bn ($0.7b
Slide 12: Economic Value of VA Book Has Improved Over Time
Economic Value of VA Book Has Improved Over Time As of 3rd Quarter 2016 2,000 1,800 Time PV of PV of Net PV Period Fees Benefits 1,600 2011 $3.0bn ($0.5bn) $2.5bn 2012 $4.3bn ($0.4bn) $3.9bn 1,400 Guarantee Fees (excludes base contract fees) Benefits 2013 $5.8bn ($0.4bn) $5.4bn 1,200 2014 $7.3bn ($0
Slide 13: GMWB Cash Flow Stress Scenarios
GMWB Cash Flow Stress Scenarios $millions S&P @ 9/30 = 2,168 • Includes guarantee fees only 2,000 Guarantee Fees Base, 5% Gross Return • Uses prudent best estimate assumptions (AG43, C3P2) 1,800 PV Future Guarantee Fees 10,155 Benefits 1,600 PV Benefits (2,159) • 5% gross return is well below histor
Slide 14: Reserves are Based on Conservative Return Assumptions
Reserves are Based on Conservative Return Assumptions IFRS Mean Return vs S&P Historical IFRS Mean Return vs S&P 500 Historical 10 • All accounting bases assume 20-year equity market returns well below the mean returns 9 posted by the S&P 500 8 • IFRS return assumptions are especially punitive. 7 Th
Slide 15: From Economic to IFRS
From Economic to IFRS PV of cash flows remains positive even using risk-neutral growth scenarios 2,000 1,800 1,600 1,400 Guarantee Fees (excludes base contract fees) Benefits Time PV of PV of Net PV 1,200 Period Fees Benefits 3Q16 Base $10.2bn ($2.2bn) $8.0bn 1,000 RN Base $11.6bn ($9.2bn) $2.4bn 80
Slide 16: From Economic to IFRS
From Economic to IFRS IFRS also does not allow full fee recognition in reserves 2,000 1,800 1,600 1,400 Guarantee Fees (excludes base contract fees) Benefits Time PV of PV of Net PV 1,200 Period Fees Benefits 3Q16 Base $10.2bn ($2.2bn) $8.0bn 1,000 RN Base $11.6bn ($9.2bn) $2.4bn 800 RN ½ Fees $5.8b
Slide 17: Economic Backdrop
Economic Backdrop S&P 500 10-year Treasury Rate 30-year Treasury vs 30-year Swap 2,500 3.5 4.0 3.0 2,000 3.5 2.5 1,500 3.0 2.0 1.5 1,000 2.5 1.0 500 2.0 30-Year Treasury Rate 0.5 30-Year Swap Rate 0 0.0 1.5 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-11 Se
Slide 18: Cohort Analysis
Cohort Analysis Inforce VA Cohort Analysis GMDB GMWB • Pre March 2007 block still solidly Pre 3/31/07 Cohort Post 3/31/07 Cohort Pre 3/31/07 Cohort Post 3/31/07 Cohort profitable due to hedge program 874,034 109% • No write-offs, write-downs, goodwill 97% 96% 756,971 94% impairments or charges taken
Slide 19: Variable Annuity Surrender Experience
Variable Annuity Surrender Experience 20% 200,000 18% 180,000 16% 160,000 • Variable annuity surrenders have been Mean Account Value ($millions) 14% 140,000 Annualized Rate % largely stable over the last 5 years 12% 120,000 10% 100,000 • The initial drop from a 6% to 5% trailing average on the left
Slide 20: Variable Annuities with GMWB: Allocation of Values
Variable Annuities with GMWB Allocation of Values In-Force Allocation of Accumulation Values • No material differences between policies with and without guarantees 100% • Policyholders’ risk tolerance objectives 90% are aligned with Jackson’s 80% 70% • Jackson’s policyholder allocations 60% represen
Slide 21: VA Account Value by Optional Benefit Guarantee Type
VA Account Value by Optional Benefit Guarantee Type Current Percentage Available to Withdraw Simple Interest Bonus No Bonus >5% 5% >6% <=4% >4% to 5% 6%
Slide 22: Assumption Bases
Assumption Bases • Best estimate – Generally used for IFRS and EEV reporting – IFRS exception is for FAS157 valuation of VA guarantees where a margin is prescribed – Based on Company experience if available – Alternative sources include prior similar products and industry surveys • Prudent estimate
Slide 23: Assumption Review Outcome
Assumption Review Outcome • Magnitude of changes in underlying assumptions similar to recent years • Assumption trends for VA – Lower lapses – Slight decline in VA mortality which contributed to overall higher persistency – Expenses modestly higher • Impacts – Expenses were a modest negative impact
Slide 24: NAIC Review of Variable Annuity Framework
NAIC Review of Variable Annuity Framework • NAIC Variable Annuities Issues Working Group charged with review of AG43/C3 Phase II – Initial stated focus was on the use of captives – Proposal presented by Oliver Wyman with comment period through mid-November – Second QIS likely to follow after comment
Slide 25: NAIC Review of Variable Annuity Framework
NAIC Review of Variable Annuity Framework Comments on current framework • High Level Overview – Total Adjusted Capital (Capital and surplus, plus AVR) – Required Capital • Mostly formulaic • Primarily charges from asset based exposures, plus risk related to mortality, interest rate, etc. C-3 Phase I
Slide 26: Statutory Framework – Voluntary Reserves
Statutory Framework – Voluntary Reserves Required Capital Reserves Voluntary Reserves Level of Interest Rates Low High
Slide 27: Jackson Produces Results
Jackson Produces Results Jackson paid a $450m remittance in the first half of 2016 and still grew RBC ex-permitted practice Statutory Admitted Assets Statutory Premiums RBC Ratio and Distributions ($billions) ($billions) ($millions) 800% 225 30 212.7 700 199.1 700% 200 189.4 25.3 25.3 25 24.1 600 17
Slide 28: Superior Operating ROE
Superior Operating ROE • Jackson continues to return well above 35% the cost of capital as well as significantly 30% above industry ROEs • Well hedged VA book coming into 2008 25% crisis means that profitability of back 20% book is intact 15% • Post crisis pricing environment has been favorable for
Slide 29: Summary
Summary • Jackson provides commercial and thought leadership to the retirement industry • Unique history of navigating macroeconomic cycles to the benefit of consumers and shareholders • Proven risk management has ensured strong financial performance • Our capabilities and our history position us un