Asset Liability Management: Identifying and Managing Risk Chad Myers Vice President Asset Liability Management

Overview ▲ Risk management philosophy affects nearly everything JNL does – Product development – Product pricing – Investment strategy and implementation – Hedging activities ▲ Emphasis on identifying risks and understanding them – JNL doesn’t take risks it can’t properly evaluate – Assumption of risk requires appropriate compensation – Deterministic vs. stochastic approach

Approaches to Risk Management ▲ Pricing ▲ Structure ▲ Reinsurance ▲ Diversification ▲ Hedging

Fixed Annuities ▲ JNL’s single largest product line ▲ Third largest fixed annuity block in the U.S. ▲ Spread-based ▲ Contractual minimum interest rate is generally 3% ▲ 92% of JNL’s book can be reset annually

JNL Max Plan Rate vs. Market Rates 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% (%percent) Highest Competitor9 Yr TreasuryMax New MoneyCompetitor Average

Fixed Annuity Interest Spread 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Jan-96 Mar-96 May- Jul-96 Sep- Nov- Jan-97 Mar-97 May- Jul-97 Sep- Nov- Jan-98 Mar-98 May- Jul-98 Sep- Nov- Jan-99 Mar-99 May- Jul-99 Sep- Nov- Jan-00 Mar-00 May- Jul-00 Sep- Nov- Jan-01 Mar-01 May- Jul-01 Sep- Nov- Jan-02 Mar-02 May- (Net Spread %) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% (Net Credited Rate %) Normalized Net Investment SpreadNormalized Credited Rate

Variable Annuities ▲ Growing portion of JNL’s retail liabilities ▲ Unit-linked deferred annuity contract – Performance in the underlying funds is passed onto the client ▲ Asset based fees used to cover benefits /expenses ▲ JNL has moved to an unbundled platform

VA Guaranteed Benefits ▲ JNL has chosen not to be a leader on guaranteed benefits – Aggressive benefits not adequately priced in market – Aggressive benefit built on unproven assumptions ▲ GMDB – Main exposure is to 5% annual accumulation – Perspective II offers return of premium Other options offered with appropriate charges – Not reinsured due to manageable mortality-based risk ▲ GMIB – Only offered on unbundled basis – Must be elected at extra charge – Requires annuitization after 10 years – Benefit capped at 200% of premium – Reinsured due to uncertainty of utilization

Perspective II Optional Benefits Elected: Year-to-Date September 2002 No optional benefits elected71,338,16613% 5% Compounded Death Benefit107,163,001 19% Maximum Anniversary Death Benefit59,720,935 11% Combination Death Benefit90,830,651 16% Earnings Max30,246,358 5% GMIB145,244,111 26% 2% Premium Credit23,902,163 4% 3% Premium Credit12,957,713 2% 4% Premium Credit238,462,750 42% 20% Free Partial26,691,070 5% 5 Year Withdrawal Charge31,458,968 6% Year-to-Date Issues September ,564, % BenefitInitial PremiumPercentage

Equity Index Annuities ▲ Hybrid of variable annuity / fixed annuity ▲ Greater of: – 90% of the premium accumulated at 3% or… – Percentage of the gain in the S&P 500 ▲ Simple design, easy to hedge ▲ Options bought to cover the equity portion ▲ Fixed income invested to provide minimum guarantee – Spread-based

Life Insurance ▲ Not primary focus over last several years ▲ Maintain $5 billion in life insurance liabilities ▲ Term and Interest Sensitive Life ▲ Mortality on term locked in at time of sale due to 90% quota share arrangement ▲ Interest Sensitive Life pricing has spread and mortality gains to cover benefits and expenses

Category12/31/966/30/02 Amount% % Annuities with Book Value Surrender$15, %$13, % Annuities with MVA1,8637.5%4, % Equity-Linked Index Annuities340.1%2,4665.9% Other7333.0%1,3273.2% Total General Account Annuities$18, %$22, % Life Insurance4, %5, % Institutional Products1,4645.9%9, % Total General Account$24, %$37, % Separate Account (VA)3451.4%4, % Total Reserves$24, %$41, % Data is consolidated to include Jackson National of New York. Statutory Reserves – Major Product Categories

JNL Risk Profile ▲ Three main product types – Fixed annuities / Institutional (spread- based) – Variable annuities (fee-based) – Life insurance (hybrid of spread and mortality)

JNL Spread Business Basics ▲ JNL issues contracts with initial crediting rates subject to reset ▲ Policies are subject to surrender charges ▲ Long-term rate guarantees are further subject to market value adjustments ▲ Assets are invested in a diversified pool of mostly fixed income assets to earn a spread

Risk Inherent in Spread Lending Businesses ▲ Interest rate risk ▲ Spread risk ▲ Credit risk ▲ Liquidity risk

Interest Rate Risk ▲ Rate movements cause changes in the value of assets and liabilities ▲ Where sensitivities are materially different, rate changes will cause economic gains or losses ▲ Significant rate increases - book value surrenders ▲ Significant rate drops - minimum rate guarantees

JNL Approach to Interest Rate Risk ▲ General risk mitigation – Option adjusted pricing – Surrender charges – Product diversification ▲ Increasing rates – Swaption program – Market value adjustments ▲ Decreasing rates – Product specific investment guidelines – Annual resets on fixed annuities

Spread Risk ▲ Profitability depends on – Ability to achieve pricing spreads ▲ Spreads can be affected by – Reinvestment risk – Embedded options in assets/liabilities – Equity return assumptions – Investment lag – Lost coupon income – Expense variances

JNL Approach to Spread Risk ▲ Focus on annual reset products for fixed annuities ▲ Match assets and liabilities ▲ Low exposure to equity/property ▲ Risk adjusted return assumptions ▲ Strong expense discipline

Credit Risk ▲ At its core the spread-based business relies on a credit arbitrage – Issue contracts based on high credit rating – Invest in lower-rated credits to earn a spread above issuance cost – Hold adequate capital to allow for risk ▲ The main question is how much risk to take? – Higher-risk assets provide higher spreads, but increase capital needs and credit risk – Lower-risk assets have lower capital needs and credit risk but provide lower spreads

JNL Approach to Credit Risk ▲ Balance trade-off between risk and yield ▲ Capitalize the company to a level appropriate for the level of risk ▲ Evaluate all investments net of expected long-term default cost ▲ Rigorous credit evaluation process ▲ Well-diversified portfolio ▲ JNL establishes policy, PPMA implements

Liquidity Risk ▲ Liabilities provide for varying degrees of liquidity – Medium-term notes, Single Premium Immediate Annuities – no liquidity – Fixed annuities offer liquidity with varying surrender penalties ▲ Retail policies tend to be “sticky” – Due to surrender charges and inertia ▲ Institutional holders exercise options very efficiently ▲ Asset liquidity must reflect potential liability demands

JNL Liquidity Analysis * Excess liquidity-1 year horizon Coverage ratio-30 day horizonCoverage ratio-1 year horizon * Ratio of Available Assets to Potential Obligations JNL Approach to Liquidity Risk

Variable Annuities ▲ Fee-based business ▲ Main drivers of profitability are determined at pricing ▲ Earnings variability driven by: – Equity returns – Guaranteed benefits – Expenses

Life Insurance ▲ Spread and mortality based business ▲ Spread component similar to fixed annuities ▲ Mortality component managed through reinsurance – Lock in mortality assumptions at policy issue

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% Pop Down 3% Pop Down 2% Pop Down 1% LevelPop Up 1% Pop Up 2% Pop Up 3% Pop Up 4% Pop Up 5% Pop Up 6% Pop Up 7% UnhedgedHedged Hedge Analysis Rate Scenario Where Does JNL Stand?