A.M. Best Affirms Ratings of Pacific Life; Assigns Debt Rating to New Separate Account FABS Program.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit ratings (ICR) of "aa+" of Pacific Life Insurance Company (PLIC) (Nebraska) and its wholly-owned subsidiary, Pacific Life & Annuity Company (Arizona) (together known as Pacific Life). In addition, A.M. Best has affirmed the (ICR) of "a+" and the debt ratings of PLIC's parent holding company, Pacific LifeCorp (Delaware).

Concurrently, A.M. Best has affirmed the debt ratings of the outstanding notes issued under the general account and separate account funding agreement-backed securities (FABS) programs sponsored by PLIC. Additionally, A.M. Best has assigned a debt rating of "aa+" to PLIC's third separate account FABS program, Pacific Pilot Funding III (PPF). The outlook for all ratings is stable. (Please see link below for a detailed listing of the companies and ratings.)

The ratings of Pacific Life reflect its superior risk-adjusted capitalization, excellent liquidity profile and financial flexibility, extensive distribution relationships, strong competitive positions and prudent financial and risk management practices. A.M. Best also notes the strength of company management, which is evidenced by its disciplined and highly focused business strategies.

Pacific Life maintains its prominent position as a provider of choice in the most affluent market segments for individual life insurance and variable annuities. In addition, Pacific Life has consistently achieved revenue growth that exceeds industry averages, yielding healthy levels of operating cash flow supported by a stable liability structure, a diversified investment portfolio, extensive liquidity sources and moderate financial leverage. Pacific Life's risk-adjusted capital position has benefited from the disposition of much of its beneficial ownership interest in Allianz Global Investors (formerly PIMCO Advisors, L.P.), as well as from the 2005 sale of its group insurance business.

These strengths are partly offset by the ongoing potential for earnings volatility due to the nature of Pacific Life's business mix. Given its competitive position among the market leaders in variable life and variable annuities, Pacific Life has a disproportionate exposure to the equity markets relative to the rest of the industry. Furthermore, Pacific Life's core universal and corporate owned life insurance (COLI) products, as well as its institutional investment products, are also sensitive to further changes in interest rates, economic conditions and unfavorable legislation. While Pacific Life's broad product portfolio and its diversified and highly productive distribution relationships offer some insulation from unfavorable market conditions, the potential for earnings volatility remains a risk to its long-term financial strength.

Lastly, although the quality of Pacific Life's investment portfolio has generally improved with the favorable credit cycle, the company still maintains an above average exposure to NAIC 2 bonds (23% of invested assets, 35% of bonds). However, A.M. Best notes that Pacific Life's solid investment management capabilities and strong financial and risk management practices largely mitigate concerns in this area.

PLIC's newly-rated separate account FABS program was established to issue approximately $89.6 million of floating rate notes to institutional investors in the United States in accordance with Rule 144A of the Securities Act. The issuer of the notes, PPF, is a statutory trust established under the laws of the State of Delaware. PPF has used the net proceeds from the sale of the notes to acquire a separate account funding agreement issued by PLIC, which is domiciled in and subject to the laws of Nebraska.

Based on A.M. Best's analysis of this separate account FABS structure, the notes will carry PLIC's issuer credit rating of "aa+". This reflects the general account guarantee provided by PLIC and that the claims of holders of funding agreements would be treated pari passu with claims under the company's insurance policies and annuity policies or contracts.

For a complete listing of Pacific LifeCorp's FSRs, ICRs and debt ratings, please visit www.ambest.com/press/061411pacificlife.pdf.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.