A.M. Best Affirms Financial Strength and Debt Ratings of Pacific Life.

Business Editors

NOTE: UPDATE TO MAY 1 PRESS RELEASE

OLDWICK, N.J.--(BUSINESS WIRE)--May 2, 2003

A.M. Best Co. has affirmed the financial strength rating of A++ (Superior) of Pacific Life Insurance Company (Newport, CA) and its wholly-owned subsidiary, Pacific Life & Annuity Company.

Concurrently, A.M. Best has affirmed its "aa-" rating on the lead insurer's surplus notes. The outlook on these ratings has been changed from stable to negative. In addition, the AMB-1+ rating on Pacific Life's $700 million commercial paper program has been affirmed with a stable outlook.

The ratings reflect Pacific Life's superior risk-adjusted capitalization, modest financial leverage, strong liquidity and prudent financial management, as well as its prominent position in the upper-income markets for individual life insurance and annuities. Pacific Life has also leveraged its expertise in investment management to establish a leading position in the institutional products arena by capitalizing on new market opportunities in the structured settlement, structured finance and funding agreement segments. Through its diverse operations, Pacific Life has achieved revenue growth that exceeds industry averages and generated strong operating cash flows.

Pacific Life's core insurance operations are complemented by its asset management activities. Through its strategic relationship with Allianz Dresdner Asset Management of America, L.P. (ADAMA) (formerly PIMCO Advisors, L.P.)--one of the largest asset management firms in the United States with approximately $305 billion in funds under management by PIMCO (its bond manager)--Pacific Life has access to a portfolio of competitive investment products and broadened distribution for its own insurance offerings.

Pacific Life holds a beneficial ownership interest in ADAMA. This interest, valued at over $2 billion at year-end 2002, supports Pacific Life's superior capital position, while contributing substantially to operating earnings through strong dividend income. A.M. Best recognizes the strategic importance of this affiliation; however, the sizeable investment creates concentration, liquidity and reinvestment risk. A.M. Best believes these risks have been somewhat mitigated through an agreement with Allianz AG, which limits the downside risk related to the value of this holding while permitting up to $250 million of such interest to be converted to cash on a quarterly basis. A.M Best views this liquidity feature favorably, with Pacific Life exercising such option for the first time on March 31, 2003.

Pacific Life's strengths are partially offset by its weakened profitability, substantial realized and unrealized investment losses and a recent decline in capital and surplus. These factors, predominantly driven by unfavorable economic conditions, contributed to the change in the rating outlook. GAAP earnings from annuities and mutual funds in particular were negatively impacted by the downturn in the equity markets. Declines in asset values, write-offs of deferred acquisition costs, reserve increases related to guaranteed products and tighter margins on interest spread-based business contributed to the earnings decline. In addition, gross credit losses and impairments of $252 million, primarily related to former investment grade credits, led to the company's first decline in capital and surplus in five years.

A.M. Best also notes that the organization supports a higher degree of risk relative to many of its peers within its ancillary non-insurance operations. These operations, including an aircraft leasing business, which is part of an affiliated entity outside of the insurance company, and a credit default operation that is currently in run-off have drawn more attention and represent a greater part of overall earnings in recent years. However, A.M. Best recognizes that management actively monitors these operations and employs sophisticated risk management techniques. In addition, A.M. Best believes the organization's diversified operating platform and disciplined financial management somewhat insulate the company from potential volatility within these non-core operations.

Conservative leverage, with total debt to total capital of approximately 11%, combined with strong debt service coverage, reflects an exceptional ability to repay obligations. The company's diverse funding sources, including a $400 million bank line with no material adverse change clause, commercial paper program, highly liquid investment portfolio and affiliate bank lines, as well as its remaining PIMCO interest, also provide extensive financial flexibility.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.