Fitch downward Pacific LifeCorp's Ratings, Outlook Negative

 

Monday, Mar 16,2009, 1:17:46 PM   Click:

Fitch Ratings has downgraded the Pacific LifeCorp (PLC) the senior unsecured debt rating to 'A-' from 'A' and the Insurer Financial Strength (IFS) in the opinion of PLC life insurance subsidiaries to 'AA - 'from' AA '. In addition, commercial paper (CP) program of Pacific Life Insurance Company (PLIC) was confirmed at 'F1 +'. See the complete list of rating actions at the end of this release. The Rating Outlook is revised to negative from stable.

Today, the rating actions reflect Fitch believes that the capital of the PLC level fell to its historic level in 2008 because of the difficult economic environment. In Fitch's opinion, earnings quality and return on investments during the last calendar year, do not align with the logic notice.

The evaluation of the actions also reflect PLIC high exposure to equity markets, primarily through its variable annuity (VA) businesses and to a lesser extent its investments in the secondary private equity in its general account. In addition, Fitch believes PLIC Alt-A residential mortgage-backed securities mortgages and obligations of the guaranteed debt, which is remarkable, but not outside of the industry average, may continue to see more degradation. PLC also maintains an even exposure to unrealized losses on its investment portfolio under the Act that the accounting rules are not taken into account in the capital. PLIC Fitch notes that exposure to securities backed by mortgages is pre-2005 and particularly AAA-rated.

Fitch's rating actions do PLIC strong statutory risk-based capital (RBC) levels, which are likely to remain above the management objective of 450% at the end of 2008. However, Fitch also recognizes that some of the capital flexibility that PLIC late 2007 RBC of 768% enjoy the company has now significantly reduced the forecast of investment and depreciation reserve for the guarantees of VA living benefit that took place in 2008.

Fitch expects leverage to remain cautious to a projected debt to capital ratio of almost 20% at the end of 2008, which excludes the debt (which is non-recourse to the PLC) and equity related to Aviation Capital Group (ACG) and other non-insurance operations. Although the capital and credit markets has deteriorated for all finance companies, Fitch believes ACG has solutions for access to adequate external financing. Positively CAG are the funding requirements should be minimal in the short term.

Positively, Fitch notes that liquidity seems PLC from two sons of an insurance holding company and operating company perspective. The company has enough financial flexibility of access to sources of liquidity available, including but not limited to $ 700 million CP program and over $ 1 billion in advances to the eligible Federal Home Loan Bank of Topeka. PLIC PLC and have no debt due until 2023 and PLIC operating debt (eg funding agreements) is clearly self-financing for several years.