A.M. Best Downgrades Ratings of Jefferson National Life Insurance Company; Revises Outlook to Negative.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating to B- (Fair) from B (Fair) and issuer credit rating to "bb-" from "bb" of Jefferson National Life Insurance Company (JNL) (Dallas, TX). The outlook has been revised to negative from stable.

These rating actions reflect JNL's significant decrease in its statutory capital and surplus funds due to realized investment losses, net operating losses and a dividend to its parent company. As a result, JNL's risk-adjusted capitalization has weakened as far as supporting its insurance and investment risks.

In 2008, JNL sustained large net operating losses, largely due to Guaranteed Minimum Death Benefit (GMDB) reserves that support its legacy in-force variable annuity business. While these GMDB's are 100% reinsured by JNL, the company must increase reserves based on the resultant increase in reinsurance premiums. In addition, its operating performance was impacted by lower fee income from assets under management. JNL also incurred realized capital losses through impairments in several of its bond holdings, which led to a large net loss in 2008, further eroding its statutory capital and surplus funds.

The negative outlook reflects A.M. Best's view that JNL's balance sheet and operating performance will continue to be pressured by volatility in the U.S. equity markets, which in turn, may impact its variable annuity business and the company's underlying profitability.

Partially offsetting these rating factors are JNL's strong technology platform, flat fee-based variable annuity product and management's initiatives to reduce expenses and raise new capital to shore up its balance sheet position.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.