Fitch Affirms Pacific Life's IFS rating; Expects to Rate Surplus Note 'A-'.

NEW YORK -- Fitch Ratings has affirmed Pacific Life Insurance Company's (PLIC) Insurer Financial Strength Rating (IFS) of 'AA-' and assigned an expected 'A-' rating to PLIC's proposed surplus note issuance, which reflects wider notching from the IFS rating. In addition, Fitch has affirmed Pacific LifeCorp's (PLC) senior unsecured debt rating of 'A-'. PLIC is the primary life insurance subsidiary of PLC. PLIC's commercial paper (CP) program was also affirmed at 'F1+'. PLIC's existing $150 million of surplus notes were downgraded to 'A-' from 'A'. See complete list of rating actions at the end of this release. The Rating Outlook remains Negative on all ratings.

Consistent with Fitch's insurance criteria, the increased notching between the surplus note and the IFS rating resulted from the expected relatively high ratio of surplus notes to pro forma total adjusted capital (TAC) of 25% at March 31, 2009, adjusted for certain permitted practices. PLC's expected equity-adjusted financial leverage is 23% pro forma March 31, 2009, which excludes debt and equity related to Aviation Capital Group (ACG) and other non-insurance operations, the majority of which is nonrecourse to PLC.

Fitch's affirmation of the existing ratings considers PLIC's relatively strong statutory risk-based capital (RBC) level of 566% at year-end 2008 (482% adjusted for certain permitted practices). However, Fitch's ratings and Outlook recognize that some of the capital flexibility that PLIC's 779% RBC at year-end 2007 afforded the company has significantly diminished as a result of the investment impairments and variable annuity (VA) reserve strengthening that has occurred through the end of the first quarter of 2009. PLIC's TAC was $2.8 billion excluding permitted practices at March 31, 2009, which is down 10% from year-end 2008 and 44% from year-end 2007.

The ratings and Outlook also reflect PLIC's high exposure to the equity markets, principally through its VA business and to a lesser extent its general account private equity holdings. In addition, Fitch believes PLIC's Alt-A residential mortgage-backed securities and collateralized debt obligations, which are notable, though not outside of industry averages, may continue to see additional deterioration. PLC also maintains a still meaningful (albeit improved given recent credit spread compression) exposure to unrealized losses on its investment portfolio that under statutory accounting rules are not reflected in capital. Downward pressure on PLC's ratings may occur if Fitch assesses the level of earnings and capital volatility caused by the aforementioned factors to be too high for the current ratings.

Positively, Fitch notes that PLC's liquidity appears sound both from a holding company and insurance operating company perspective. The company has adequate financial flexibility with access to available sources of liquidity including but not limited to a $700 million CP program. PLC and PLIC have no financial debt due until 2023 and PLIC's operating debt (e.g. funding agreements) appears substantially self-funding for several years.

Fitch has assigned an expected rating to PLIC's surplus note offering:

--Surplus note 'A-'.

Fitch has downgraded the existing surplus note as follows:

--$150 million 7.9% surplus notes due 2023 to 'A-' from 'A'.

Fitch has affirmed the following ratings with a Negative Outlook:

Pacific LifeCorp

--Long-term Issuer Default Rating (IDR) at 'A';

--$600 million 6.6% senior notes due 2033 at 'A-'.

Pacific Life Insurance Company

--Long-term IDR at 'A+';

--IFS at 'AA-';

--Short-term IDR at 'F1+';

--CP at 'F1+'.

Pacific Life & Annuity Company

--IFS at 'AA-'.

Pacific Life Re Limited

--IFS at 'A-'.

Pacific Life Funding, LLC 

--Funding Agreement-backed Note Program at 'AA-'.

Pacific Life Global Funding

--Funding Agreement-backed Note Program at 'AA-'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.