A.M. Best Assigns Ratings to Pacific Life's Funding Agreement-Backed Securities Programs.

OLDWICK, N.J. -- A.M. Best Co. has assigned a debt rating of "aa+" to the two funding agreement-backed securities (FABS) programs established by Pacific Life Insurance Company (Pacific Life) (Newport Beach, CA). A.M. Best has also assigned a debt rating of "aa+" to the outstanding notes issued under Pacific Life's European Medium-Term Notes (EMTN) and its Global Medium-Term Notes (GMTN) programs. Concurrently, A.M. Best has assigned an issuer credit rating (ICR) of "aa+" to Pacific Life. Pacific Life is the lead operating company of the Pacific Life Mutual Holding Company structure. The financial strength rating of A++ (Superior) of Pacific Life and its affiliate, Pacific Life & Annuity Company (Phoenix, AZ), and the group's remaining debt ratings are unaffected. The outlook for all ratings remains negative.

The ratings reflect Pacific Life's diversified operating platform, modest financial leverage, strong risk-adjusted capitalization, superior liquidity and prudent financial management, as well as its prominent position in the upper-income markets for individual life insurance and annuities. Furthermore, Pacific Life has leveraged its expertise in investment management to establish a leading position in the institutional products arena by capitalizing on market opportunities in the structured settlement, structured finance and funding agreement segments.

These strengths are partially offset by lower operating trends relative to similarly rated companies, as well as an earnings profile that has become more highly correlated to equity market performance and, to some degree, dependent on sales of commodity-like products. A.M. Best views somewhat positively the company's recent divestiture of its group operations, an ancillary line for Pacific Life, which facilitates capital reallocation to its core businesses.

Pacific Life's $8 billion EMTN program (initially $5 billion) was established in 1998 to issue fixed or floating rate notes in one or more series to institutional investors outside of the United States on a private placement basis through a limited liability company, Pacific Life Funding, LLC (PLF), which was incorporated in the Cayman Islands. The notes are currently sold to retail investors in a number of specified European countries and to institutional buyers on a private placement basis. Each series may comprise one or more tranches issued on different dates; each tranche is secured by a funding agreement issued by Pacific Life to PLF.

Through its $3 billion GMTN program, Pacific Life has issued several series of notes to institutional investors in the United States in accordance with Rule 144A of the Securities Act. The issuer of the notes is a Delaware special purpose statutory trust, Pacific Life Global Funding, which uses the net proceeds from each series of notes to acquire one or more funding agreements issued by Pacific Life.

Based on A.M. Best's analysis of the group's FABS structures, the programs and notes will carry Pacific Life's ICR of "aa+". This reflects that each series of notes is secured by a first priority perfected security interest in the underlying funding agreements, which are unsecured obligations of Pacific Life's general account. In the event of a liquidation or dissolution of Pacific Life in accordance with California law, the claims of holders of funding agreements would be treated pari passu with claims under insurance and annuity policies or contracts. Therefore, in assigning the above ICR, A.M. Best believes that all investors in Pacific Life's FABS are exposed to the inherent credit, liquidity and business risks of the sponsoring insurance company.

For additional insight, please refer to A.M. Best's methodology, Rating Funding Agreement-Backed Securities, at http://www.ambest.com/ratings/fundagreementmethod.pdf.

For a complete list of Pacific Life Insurance Company's issuances under its FABS programs, please visit http://www.ambest.com/press/121405pacificlife.pdf.

For a list of A.M. Best's debt ratings, please visit http://www.ambest.com/debt.

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 http://www.ambest.com.