Fitch Ratings has affirmed the ratings of Pacific LifeCorp (PLC) and certain of its subsidiaries, including Pacific Life Insurance Company (PLIC). The rating outlook is stable.
According to Fitch, PLC's ratings are based on the company's “diverse business profile, very strong statutory capitalisation, good liquidity and solid investment performance”.
Somewhat offsetting these positives are the elevated leverage across the organisation, significant variable annuity (VA) exposure and earnings pressure.
PLIC had statutory capitalisation of $7.5 billion at 30 June, up 6 percent from the prior year-end and driven by statutory net income and unrealised capital gains from derivatives.
The company has diversified its product sales and has moved away from the sale of capital intensive products. It has also strengthened its VA hedging programme, which Fitch claims could “lessen the statutory capital impact if equity markets experience significant deterioration”.
PLIC's reported risk-based capital (RBC) has exhibited more volatility than peers, since historically PLIC had not moved the VA business to a captive affiliate.
At year-end 2013 the company's RBC was 673 percent compared to 596 percent at the prior year-end.
Currently the company cedes a small percentage of new and existing VA business to a captive.
During 2013, PLIC changed the valuation basis method for VA statutory reserves to include a voluntary reserve component. Fitch has stated that both of these actions should reduce RBC volatility going forward.
PLIC, Pacific Life & Annuity Company and Pacific Life Re all currently hold an Fitch Insurer Financial Strength rating of "A+"
