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Rating Action:

Moody's affirms Pacific LifeCorp (A3 senior) and subs; outlook changed to negative

11 Feb 2009

Approximately $750 million of securities affected

New York, February 11, 2009 -- Moody's Investors Service has affirmed the ratings of Pacific LifeCorp (senior debt at A3) and its life insurance companies led by Pacific Life Insurance Company (Pacific Life -- insurance financial strength (IFS) rating at Aa3), but changed the outlook for the companies to negative from stable.

Moody's says that the rating affirmation is based primarily on the company's continued strong regulatory capitalization and excellent financial flexibility despite pressures from expected investment losses arising from the challenging economic environment and the impact of a continued negative equity market on its variable annuity business. The holding company has no debt maturing for years and maintains ample liquid assets relative to annual fixed charges. The rating agency also cites as positive factors the company's strong market presence and reputation in the upscale life insurance market, and its investment management and annuity businesses.

However, the change in Pacific LifeCorp's outlook to negative reflects expected pressures on profitability and capital adequacy from 1) expected continued depressed equity markets and the company's sizable variable annuity business with guaranteed living and death benefits, and 2) investment losses expected on mortgage-related assets (e.g. RMBS, CMBS, and commercial mortgage loans) and corporate bonds given the economic recession.

Despite the company's expected strong capitalization at year-end 2008, there remains the potential for additional weakening during 2009 should equity markets continue to drop. "The performance of Pacific LifeCorp's variable annuity business will be further constrained if assets under management drop, associated fees decline, and regulatory reserves and capital requirements increase," said Vice President & Senior Credit Officer Arthur Fliegelman.

According to Moody's, a downgrade of Pacific LifeCorp's ratings could result from the following: 1) investment losses exceed $500 million pre-tax in 2009, 2) financial flexibility metrics remain below long-run expectations of earnings coverage of at least 8 times and cash flow coverage of at least 5 times, or 3) NAIC RBC falls below 325% for a meaningful length of time. Conversely, the outlook could return to stable if: 1) investment losses are less than $300 million pre-tax in 2009, 2) profitability improves with ROEs in double digits, and 3) NAIC RBC is maintained at or near 400%.

The following ratings were affirmed with a negative outlook:

Pacific LifeCorp -- senior unsecured debt at A3;

Pacific Life Insurance Company -- insurance financial strength at Aa3; surplus notes at A2;

Pacific Life & Annuity Company -- insurance financial strength at Aa3;

Pacific Life Funding, LLC -- senior secured debt at Aa3;

Pacific Life Global Funding -- senior secured debt at Aa3;

Pacific Pilot Funding -- senior secured debt at Aa3;

Pacific Pilot Funding II -- senior secured debt at Aa3;

COUNTS Trust, Series 2006-4 -- senior secured debt at Aa3;

COUNTS Trust, Series 2007-2 -- senior secured debt at Aa3.

The following ratings were affirmed with a stable outlook:

Pacific Life Insurance Company -- short-term insurance financial strength at P-1; commercial paper at P-1.

The last rating action on Pacific Life was taken on April 5, 2007 when Moody's assigned a Aa3 debt rating to COUNTS Trust, Series 2007-2 Certificates based upon the Aa3 insurance financial strength rating of Pacific Life.

Pacific LifeCorp is an insurance and financial services organization headquartered in Newport Beach, California. It had approximately $103 billion in GAAP assets and $5.3 billion in stockholder's equity as of September 30, 2008. Pacific Life, its primary subsidiary, had total statutory assets of $90 billion and total adjusted capital of $4.0 billion as of that date.

The principal methodology used in rating Pacific Life was Moody's Global Rating Methodology for Life Insurers, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to punctually pay senior policyholder claims and obligations.

For more information please visit Moody's website at ww.moodys.com/insurance.

New York
Arthur Fliegelman
VP - Senior Credit Officer
Life Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
Managing Director
Life Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Pacific LifeCorp (A3 senior) and subs; outlook changed to negative
No Related Data.
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