Ultimate Parent: Pacific Mutual Holding Company
PACIFIC LIFE INSURANCE COMPANY
6750 Mercy Road
Omaha, NE 68106
Mailing Address: 700 Newport Center Drive, Newport Beach, CA
92660-6397
Exec. Office: 700 Newport Center Drive, Newport Beach, CA 92660-6397
Web: www.pacificlife.com
Tel.: 949-219-3011 Fax: 949-644-6417
AMB#: 006885 NAIC#: 67466
Ultimate Parent#: 050799 FEIN#: 95-1079000
BEST’S CREDIT RATING
Best’s Financial Strength Rating: A+ Outlook: Stable
Best’s Financial Size Category: XV
RATING RATIONALE
The following text is derived from A.M. Best’s Credit Report on Pacific Life Group (AMB# 069720).
Rating Rationale:The ratings of Pacific Life Insurance Company (PLIC) and its subsidiary, Pacific Life & Annuity Company (PL&A) (together known as Pacific Life), reflect the group’s continued strong risk-adjusted capitalization, diversified operating profile, extensive liquidity resources, improved statutory earnings and record sales in key product lines. These factors are tempered by its above-average exposure to real estate and other less liquid assets, a statutory capital base that has been enhanced by the issuance of surplus notes and exposure to equity market volatility. A.M. Best notes that operating results can be impacted by the ongoing potential for earnings and surplus volatility due to the group’s large book of variable annuities with living benefit guarantees. However, this risk is partially mitigated by strong hedging practices embedded in its enterprise risk management practices and, to a lesser extent, by Pacific Annuity Reinsurance Company (PARC), a captive
PACIFIC LIFE INSURANCE COMPANY
Omaha, Nebraska
A+
subsidiary, established in 2012, that is used to manage a small portion (5%) of the risks relating to the variable annuity business.
Total adjusted capital for Pacific Life increased from year-end 2014 to year-end 2015, primarily driven by strong operating performance for the year. The company has experienced favorable capital growth over the past three years, and the acquisition of Manulife Financial’s retrocession business in 2011 and older life business from RGA in 2014 has provided additional life insurance in force and incremental earnings. In addition to its core life and retirement services segment, Pacific Life’s operating profile is enhanced by its reinsurance and aircraft leasing business, which contributes meaningfully to its operating results. Pacific Life continues to maintain its prominent position as a provider of choice in the affluent market segments for individual life insurance. Overall, the group is in the top 7 in life insurance sales. Pacific Life holds strong market positions in universal life, current assumption universal life, indexed universal life and variable universal life and has demonstrated solid growth in its life insurance premiums in recent years. The group’s penetration in the affluent marketplace along with strong core operating fundamentals, including persistency and mortality, has contributed to favorable rates of return on its life insurance business. Pacific Life has extensive sources of liquidity, which as of year-end 2015 include sizable positions in cash and highly liquid assets, a $700 million commercial paper program, a $400 million back-up facility at PLIC, and a $600 million revolving credit facility at its parent holding company, Pacific LifeCorp. Furthermore, PLIC and PL&A are approved to receive collateralized advances as members of the Federal Home Loan Bank of Topeka and Federal Home Loan Bank of San Francisco, respectively. A.M. Best notes that neither Pacific Life nor Pacific LifeCorp has any long-term debt maturing until 2020.
Pacific Life’s earnings remain correlated to the financial markets due to its large variable annuity block; however, the company has implemented measures to reduce its sensitivity to financial markets. With fluctuations in equity market performance and interest rates, Pacific Life’s GAAP earnings and, to a lesser extent, Pacific Life’s statutory earnings are impacted by changes in reserves and mark-to-market gains/losses on variable annuity guarantees.
Pacific Life’s risk-based capital ratio is sensitive to increases in required capital for variable annuity guarantees (due primarily to equity market movements and, to a lesser extent, interest rate movements). Up until late 2011, Pacific Life’s variable annuity hedging program was primarily focused on protecting statutory capital against equity market risk. However, A.M. Best notes that Pacific Life has since expanded the program to protect against equity volatility, which helps mitigate GAAP earnings and RBC volatility as a result of changes in equity volatility. A.M. Best also notes that Pacific Life has since added interest rate hedging and has expanded its hedging program to incorporate delta, rho and vega hedging practices for PARC. Financial leverage remains within A.M. Best’s guidelines at roughly 20.1% as of year-end 2015. Additionally, the quality of statutory capital is somewhat diminished given that surplus notes comprised roughly 20% of statutory capital and surplus at year-end 2015. Also, Pacific Life, through its aircraft leasing subsidiary, has historically maintained elevated operating leverage, although it is within A.M. Best’s guidelines. The related debt is non-recourse to Pacific Life. Finally, Pacific Life has consistently been near the lower end of the range of high-risk assets/capital and surplus relative to its peers.
Positive rating movement is possible based on a continuing trend in favorable operating performance, and demonstrated growth in absolute capital and risk based capital. Factors that could result in negative rating actions include a significant and sustained decline in consolidated risk adjusted capital, deterioration in investment performance, and an unfavorable earnings trend.
FIVE YEAR RATING HISTORY
Date Best’s FSR Date Best’s FSR 10/02/15 A+ 07/06/12 A+ 08/04/14 A+ 06/28/11 A+ 07/17/13 A+
KEY FINANCIAL INDICATORS ($000)
Total Capital Year Assets Capital Surplus Funds Asset Valuation Reserve Net Premiums Written Net Invest Income Net Income 2011 95,724,385 5,576,981 660,790 5,911,232 1,798,787 -735,484 2012 101,000,915 6,175,101 725,866 7,606,725 1,575,520 961,792 2013 109,064,766 6,502,887 531,801 8,702,003 1,857,788 521,432 2014 112,503,493 7,171,552 630,317 8,573,869 2,216,879 634,781 2015 113,241,838 7,762,480 680,618 9,039,689 2,461,008 519,752
(*) Within several financial tables of this report, this company is compared against the Individual Annuity Composite.
(*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement.
BUSINESS PROFILE
The following text is derived from A.M. Best’s Credit Report on Pacific Life Group (AMB# 069720).
PLIC operates in conjunction with its subsidiary, PL&A, and is collectively referred to as Pacific Life. Pacific Life has primary business operations consisting of life insurance, reinsurance, individual annuities, mutual funds, investment related products, and aircraft leasing. PLIC is owned by Pacific LifeCorp, an intermediate holding company whose ultimate parent is Pacific Mutual Holding Company. Primary business reporting segments for Pacific LifeCorp include the Life Insurance Division (LID), Retirement Solutions Division (RSD), Aviation Capital Group (ACG) and Reinsurance, which includes the international reinsurance operations of Pacific Life Re Limited, an affiliate of PLIC and a wholly owned subsidiary of Pacific LifeCorp and the life retrocession business. A final segment is the Corporate and Other segment.
LID’s principal products include UL, IUL, VUL, interest-sensitive whole life, survivor life, term life and corporate-owned life insurance (COLI). Pacific Life’s early entry into the indexed universal life insurance market (2005) has enabled the company to capture significant market share in a growing product line and broaden its market segments beyond the upper-income to include the upper middle-income market. The company’s continuing success in the individual life insurance market stems from
diversified product offerings, a focus on key market segments, diversified, highly professional distribution sources, and an excellent producer and policy owner service platform. This combination has allowed the company to build a stable and profitable book of business over the years. Its multi-channel life distribution system includes regional life offices, the M Financial producer group, independent marketing organizations, and institutional accounts. The institutional accounts distribution focuses on national and regional wirehouses, as well as banks and other joint marketing organizations. Pacific Life’s strategy has been to focus on expanding its present distribution systems, continuing to address the changing needs of the high net worth and corporate markets, and broadening market share in the upper middle-income market. Pacific Life’s life insurance sales represent a mix weighted largely between IUL followed by VUL and UL.
RSD develops and markets a diversified range of competitive fixed and variable annuities, mutual funds and institutional products, such as structured settlements to individuals, businesses and retirement plans through a diverse wholesaler network consisting of regional and national wirehouses, financial institutions, independent planners, settlement firms and benefit consultants. A broad range of both name-brand funds and proprietary fund selections are offered through their variable annuity and mutual fund products. RSD is positioned to meet a variety of retirement needs including wealth planning, wealth accumulation, retirement and retirement income management through its ability to continue providing value-added products and services, characterized by a strong customer and producer service orientation. Strong relationships between a nationwide network of securities broker-dealer firms, external and internal wholesalers, along with enhanced products and superior service have all contributed to continued strong distribution capacity. The variable annuity products include institutional money management, asset allocation strategies and asset-based compensation, with an emphasis on service. Variable annuity products are sold with and without riders and, in recent years, Pacific Life has made progress in significantly reducing the amount of variable annuities sold with riders. Pacific Life has successfully diversified its individual annuity product offerings through the continued development and enhancement of the company’s suite of fixed products, resulting in strong fixed annuity sales over the past several years. Fixed annuity products now include book value, market value adjustment, indexed and immediate annuity options. In 2012, the RSD segment established PARC, a variable annuity captive domiciled in Arizona as a subsidiary of Pacific LifeCorp, which assumes 5% of the variable annuity business. In addition, RSD broadened its group annuity solutions for defined benefit plans which now offer a comprehensive range of products designed to insulate the plan from investment, liquidity, and/or mortality risk. In addition, Pacific Life markets a single premium universal life product with a long-term care rider benefit which is jointly distributed between LID and RSD.
The Reinsurance segment offers a comprehensive range of wholesale life risk management products in the United Kingdom, Ireland, Asia and North America. The Reinsurance segment specializes in term life, critical illness, income protection and annuity business. Reinsurance includes the operations of the life retrocession business acquired in 2011. In August 2011, PLIC and Pacific Life Reinsurance (Barbados) Limited (PLRB), a newly formed insurer and wholly owned subsidiary of Pacific LifeCorp, acquired Manulife’s domestic and international life retrocession businesses, respectively. Also
included in the Reinsurance segment is the international reinsurance operations of Pacific Life Re Limited (PLRL), an affiliate of PLIC and a wholly owned subsidiary of Pacific LifeCorp. PLRL reinsurance risks are primarily mortality risks in the UK and Asia along with some assumption of retrocession business from larger reinsurers and some UK related longevity swaps from insurers and pension funds without material investment risk. In late 2014, the company completed a large inforce reinsurance transaction with Reinsurance Group of America, representing approximately $200 billion in face amount. Pacific Life Re Australia (Pty) Limited (PLRA) was launched in the second half of 2015 to capitalize on the withdrawal of reinsurance capacity in Australia.
Aviation Capital Group Corp. (ACG) is a wholly owned subsidiary of Pacific Life that offers aircraft leasing to the airline industry throughout the world and provides brokerage and asset management services to other third-parties. As of December 31, 2015, ACG had 266 owned and managed commercial jets, leased to approximately 100 airlines in 40 countries. Despite significant operating leverage associated with its large fleet of aircraft, ACG debt is nonrecourse to Pacific Life and is recourse only to either ACG or certain aircraft. Also, less than 15% of its portfolio is on lease to U.S. airlines. The Company’s investment in ACG represents Pacific Life’s alternative to the industry’s traditional investment in airline issued debt and has proven to be a superior strategy.
The Corporate and Other segment consists of assets and activities, which support the Company’s operating segments. Included in these support activities is the management of investments, certain entity level hedging activities and other expenses and other assets not directly attributable to the operating segments. The Corporate and Other segments also include several operations that do not qualify as operating segments and the elimination of intersegment transactions.
Scope of Operations:The Company and its subsidiaries have primary business operations consisting of life insurance, annuities, mutual funds, aircraft leasing and reinsurance. The Company’s primary business operations provide life insurance products, individual annuities and mutual funds and offers a variety of investment products and services to individuals and businesses. The top geographic locations in the United States for direct statutory premiums and annuity considerations were California, Colorado, Texas and Florida representing collectively more than one-third of total statutory direct premiums for the year ended December 31, 2015. No other jurisdiction accounted for more than 5% of the total.
TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS
Reinsurance Period ————DPW———— ——Prem Assumed—— Ending ($000) (% Chg) ($000) (% Chg) 2011 6,812,492 13.7 632,699 999.9 2012 8,467,108 24.3 544,502 -13.9 2013 9,638,738 13.8 534,449 -1.8 2014 9,302,819 -3.5 776,408 45.3 2015 9,090,643 -2.3 1,296,136 66.9 5-Yr CAGR … 8.7 … 86.9
Reinsurance
Period ———Prem Ceded——— —NPW & Deposits— Ending ($000) (% Chg) ($000) (% Chg) 2011 1,533,959 88.9 6,006,299 12.3 2012 1,404,885 -8.4 7,985,200 32.9 2013 1,471,183 4.7 9,150,027 14.6 2014 1,505,358 2.3 9,106,081 -0.5 2015 1,347,090 -10.5 9,682,488 6.3 5-Yr CAGR … 10.7 … 12.6
Territory: The company is licensed in the District Of Columbia, AL, AK, AZ, AR, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY.
2015 BY-LINE BUSINESS ($000) ——DPW—— Reinsurance —Prem Assumed— Product Line ($000) (%) ($000) (%) Ordinary life 3,005,702 33.1 974,439 75.2 Individual annuities 5,673,547 62.4 290,420 22.4 Group annuities 411,394 4.5 28,684 2.2 Individual A&H … … 2,593 0.2 Total 9,090,643 100.0 1,296,136 100.0 Reinsurance ——Prem Ceded—— ——NPW—— Product Line ($000) (%) ($000) (%) Ordinary life 1,133,358 84.1 2,846,783 31.5 Group life -34 0.0 34 0.0 Individual annuities 213,766 15.9 5,750,201 63.6 Group annuities … … 440,078 4.9 Individual A&H … … 2,593 0.0 Total 1,347,090 100.0 9,039,689 100.0 BY-LINE RESERVES ($000) Product Line 2015 2014 2013 2012 2011 Ordinary life 27,001,294 25,393,551 23,701,811 22,265,949 21,023,941 Group life 14,177 13,807 13,445 13,056 13,575 Supplementary contr 3,278 2,831 3,355 2,730 2,648 Individual annuities 17,184,898 15,116,957 13,730,361 12,155,277 11,318,095 Group annuities 2,487,838 2,355,632 2,670,940 2,772,305 3,204,421 Deposit type contracts 2,134,561 2,078,205 1,811,321 2,440,683 3,392,276 Individual A&H 19,175 21,840 18,735 20,872 21,664 Group A&H … … 1,976 2,441 124 Total 48,845,222 44,982,824 41,951,943 39,673,314 38,976,744
LIFE POLICIES STATISTICS
-Ordinary Policies- -Group Policies- -Group Certificates-Year Issued In Force Issued In Force Issued In Force 2011 14,677 3,299,865 … 1 … 31 2012 18,281 3,150,936 … 1 … 28 2013 22,962 2,933,531 … 1 … 28 2014 23,116 8,270,890 … 1 … 28 2015 21,460 7,995,309 … 1 … 28
LIFE INSURANCE IN FORCE ($000)
Year
Whole Life Endow. &
Adds Term Credit Group Industrial
Total Insurance In Force 2011 111,287,141 184,998,079 … 19,129 … 296,304,348 2012 113,898,280 176,607,065 … 18,230 … 290,523,575 2013 118,805,871 174,802,344 … 18,459 … 293,626,673 2014 124,760,911 367,369,078 … 18,642 … 492,148,630 2015 130,387,820 353,399,298 … 18,872 … 483,805,990
NEW LIFE BUSINESS ISSUED ($000)
Year Whole Life& Endow. Term Credit Group Indus-trial Total Insurance Issued Non-Par (%) Par(%) 2011 6,698,115 9,509,226 … … … 16,207,341 100.0 … 2012 8,142,012 10,290,019 … … … 18,432,031 100.0 … 2013 9,923,630 9,305,466 … … … 19,229,096 100.0 … 2014 10,026,945 11,601,102 … … … 21,628,047 100.0 … 2015 10,181,925 10,094,328 … … … 20,276,253 100.0 …
ORDINARY LIFE STATISTICS
Ord. Renew Average 1st Yr 1st Yr Gen. Lapse Premium Ord. Policy Avg Prem / Comm / Exp. / Ratio Persist (in dollars) Prem Total 1st Yr Policies Year % % Issued In Force ($/M) Prem Prem In Force 2011 5.3 74.0 1,104,268 89,787 10.31 32.0 26.0 75.08 2012 6.4 67.1 1,008,262 92,197 11.13 39.5 24.8 89.03 2013 5.7 64.5 837,431 100,087 11.38 38.2 26.2 98.14 2014 6.4 69.0 935,631 59,501 7.46 34.3 29.5 36.12 2015 4.0 69.2 944,839 60,509 8.23 31.5 30.8 39.69 First Year Gen’l Exp/ Return on Number of Policies Premium Reserves Reserves Year Issued In Force (000) (%) (%) 2011 14,677 3,299,865 782,891 1.18 -0.45 2012 18,281 3,150,936 1,074,294 1.26 0.28 2013 22,962 2,933,531 1,081,809 1.21 0.08 2014 23,116 8,270,890 1,019,246 1.18 0.12 2015 21,460 7,995,309 947,122 1.17 0.41
INDIVIDUAL ANNUITY STATISTICS Year NPW (000) Res (000) Exp to Res(%) Comm & Exp to NPW (%) Benefits & Wdrwls to NPW (%) Benefits & Wdrwls to Res (%) 2011 4,087,780 11,320,744 1.8 12.0 142.8 51.5 2012 5,358,885 12,158,007 1.9 10.0 98.3 43.3 2013 6,322,418 13,733,716 1.6 9.6 85.4 39.3 2014 5,890,486 15,119,788 1.4 10.0 101.6 39.6 2015 5,750,201 17,188,176 1.2 10.1 103.6 34.6
GROUP ANNUITY STATISTICS
Year NPW(000) (000)Res Res (%)Exp to
Comm & Exp to NPW (%) Benefits & Wdrwls to NPW (%) Benefits & Wdrwls to Res (%) 2011 207,676 3,204,421 0.4 6.0 682.9 44.3 2012 193,747 2,772,305 0.5 8.6 468.6 32.8 2013 228,217 2,670,940 0.4 6.4 248.2 21.2 2014 257,445 2,355,632 0.7 8.4 278.0 30.4 2015 440,078 2,487,838 0.6 4.5 91.3 16.2
TOTAL ANNUITY ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS
Year Total AnnuityRes (000)
Min or No Surrender Charge (%) With Surrender Charge 5%
or more (%) MVA (%)With
No Surrender Allowed (%) 2011 14,525,164 73.8 5.7 5.3 15.1 2012 14,930,312 75.8 5.6 5.6 12.9 2013 16,404,655 80.4 1.7 7.9 10.1 2014 17,475,420 79.7 1.1 7.9 11.3 2015 19,676,014 75.4 1.7 9.5 13.4
SEPARATE ACCOUNT DATA
2015 2014 2013 2012 2011 Sep Acct Assets 54,466,300 58,113,761 58,634,333 53,467,594 49,901,962 % Growth -6.3 -0.9 9.7 7.1 -7.8 S/A Assets/Adm Assets 48.1 51.7 53.8 52.9 52.1 Sep Acct Reserves 53,539,335 57,118,851 57,523,528 52,217,634 48,577,094 % Ordinary Life 12.6 12.1 11.8 11.4 11.2 % Individual Annuities 87.4 87.9 88.2 88.6 88.8 % Group Annuities … … … … 0.0 Deposit Type Liabilities 5,092 5,587 68,594 109,637 111,144 Other Liabilities 921,873 989,323 1,042,211 1,140,324 1,213,723 S/A Prems & Deposits 3,874,241 4,335,814 4,661,952 3,867,674 3,292,164 % Ordinary Life 13.1 8.0 9.4 10.6 14.5 % Individual Annuities 86.9 93.5 91.5 89.5 85.7 % Group Annuities … -1.5 -0.9 -0.1 -0.2 Sep Acct Fees & Charges 1,290,733 1,320,450 1,321,618 1,225,106 1,223,496 % Ordinary Life 21.2 20.3 20.1 22.0 22.7 % Individual Annuities 78.8 79.5 79.6 77.6 77.0 % Group Annuities … 0.1 0.3 0.4 0.3 Fees & Chgs to Assets% 2.3 2.3 2.4 2.4 2.4 Sep Acct Ben & Wdrwls 5,931,421 6,311,213 5,625,162 5,382,552 6,071,363 % Ordinary Life 5.4 4.8 5.4 6.3 6.0 % Individual Annuities 94.6 95.2 94.6 93.7 93.7 % Group Annuities … … … 0.0 0.3 Ben & Wdrwl to Assets% 10.5 10.8 10.0 10.4 11.7
Market Share/Market Presence:PLIC is the top tier operating entity in the Pacific Mutual Holding Company with consolidated assets of $137 billion at year-end 2015. Pacific Life enjoys a top tier market position in the U.S. life insurance segment with leading positions in IUL followed by VUL and UL.
GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000)
2015 2014 2013 2012 2011 California 1,318,154 1,295,460 1,343,420 1,201,136 1,002,300 Colorado 863,654 784,827 827,548 778,081 109,872 Texas 628,086 736,822 766,697 593,008 504,890 Florida 608,796 585,829 578,270 521,059 438,331 Ohio 479,855 393,274 388,674 331,095 280,233 Illinois 464,725 459,834 487,427 400,845 347,158 Pennsylvania 336,864 328,431 342,589 306,317 282,722 Minnesota 318,549 332,149 295,718 269,433 277,344 Arizona 292,520 339,088 143,532 134,980 127,535 Michigan 281,405 308,441 345,693 281,772 228,900 All Other 4,030,756 4,177,574 4,544,335 3,951,483 3,244,369 Total 9,623,363 9,741,729 10,063,904 8,769,208 6,843,653
RISK MANAGEMENT
The following text is derived from A.M. Best’s Credit Report on Pacific Life Group (AMB# 069720).
Pacific Life has a formalized and well-defined enterprise-level risk framework, with committees attended by senior management. Key risks managed within the ERM program include interest rate, equity, credit, insurance, liquidity, model, operational and emerging risks. The principal objective of the ERM program is to enable Pacific Life to grow and prosper, regardless of the economic environment, by ensuring that risks are identified, understood, and managed. The ERM framework defines objectives, establishes risk appetites and tolerances, and specifies practices for risk management and provides transparency of risk throughout the organization. The ERM group along with senior management monitors key risks and reports to the board of directors on a quarterly basis, or more frequently if needed. Business units, in coordination with ERM, define and execute risk management for their operations. Equity and interest rate risks are the greatest exposures with credit risk being smaller. Pacific Life manages its significant equity market risk through a combination of product design, customer asset allocation and hedging programs that focus on preserving statutory capital. Interest rate risk is managed by separate product portfolios with clear duration targets. Mortality, longevity and lapse risks are managed through product design, underwriting, monitoring and reinsurance. The company also has an information security program to protect against current and emerging risks that is linked to their business strategy, drivers, objectives, and processes.
The Company continuously monitors the results of their dynamic ERM program and makes continuous improvements relative to stated risk management preferences and risk limits based on the market and economic environment, and hedging effectiveness results as necessary. The company also employs an economic capital model to aid in understanding its risk profile, integrated into certain product pricing activity, and capital allocation. The economic capital model has been reviewed by independent consultants.
OPERATING PERFORMANCE
The following text is derived from A.M. Best’s Credit Report on Pacific Life Group (AMB# 069720).
Operating Results:Pretax statutory operating earnings was a gain of $709 million for full year 2015, compared to the prior year gain of $780 million for 2014. The vast majority of the group’s earnings are from PLIC which generated pre-tax statutory operating income of $669 million in 2015.
2015 GAAP net income was $662 million, compared to $541 million for the prior year. This increase was primarily driven by strong investment performance, the impact of widening credit spreads, and strong aircraft leasing performance, partially offset by unfavorable mortality and impacts from interest rates.
Below are GAAP results by business unit.
The Life Insurance segment provides a broad range of life insurance products (interest sensitive and traditional) through multiple distribution channels in the upper income and corporate markets. The Life Insurance segment represents 28% of Pacific Life’s total admitted assets for 2015, and reported net income of $89 million, compared to $91 million for the prior year. The decrease in income was primarily related to unfavorable mortality
experience and reserve increases driven by lapse assumption changes, partially offset by favorable investment returns.
The Retirement Solutions segments products include variable and fixed annuities, mutual funds, structured settlement and group annuities offered through multiple distribution channels. The Retirement Solutions segment represents 59% of Pacific Life’s total admitted assets for 2015, and reported net income of $448 million compared to $287 million for the prior year. The increase was primarily driven by strong investment returns, higher tax credits and lower hedge costs, partially offset by higher VA DAC amortization as the result of lower equity returns.
The Reinsurance segment primarily includes the domestic retrocession business, which was acquired in August 2011, due to the acquisition of the retrocession business from Manulife Financial Corporation. The Reinsurance segment also includes international reinsurance, which Pacific Life has assumed from its affiliated Pacific Life Re Limited, and wholly owned subsidiary of Pacific LifeCorp. The Reinsurance segment represents 2% of Pacific Life’s total assets for 2015, and reported net income of $67 million compared to $90 million for the prior year driven by PL Re Retro’s higher than expected claims which were partially offset by longevity new business and strong realized investment gains.
The Corporate and Other segment consists of asset and activities which support the Company’s operating segments and includes the management of investments, corporate hedging activities, and other expenses not directly attributable to the operating segments. The Corporate segment also includes institutional investment products such as funding agreements, guaranteed interest contracts (GICs) and other operations that do not qualify as operating segments. The Corporate segment reported a net loss of $49 million in 2015 compared to a net loss of $20 million for the prior year primarily driven by lower investment results within the surplus portfolio.
The Aviation Capital Group offers aircraft leasing to the airline industry throughout the world and provides brokerage and asset management services to other third-parties. They reported $107 million of net income in 2015, compared to $90 million for the prior year. The favorable results were largely driven by strong operating performance, increased lease revenue, and expense savings related to maintenance and interest.
The group continues to grow and diversify its individual life and annuity businesses, with a primary focus on the most affluent retail market segments, as well as on medium and large-sized corporations. Also, Pacific Life has expanded its hedge program to include interest rate hedging beginning in 2011 and has successfully shifted its individual annuity product sales mix from primarily variable annuities with riders to a balance between variable annuities with riders, investment only variable annuities and fixed annuities. A.M. Best favorably views these changes as they serve to reduce the group’s earnings sensitivity to equity market fluctuations.
PROFITABILITY ANALYSIS ($000)
————————Company———————— Pre-tax Net
Period Net Oper Operating Net Total Ending Income Gain Income Return 2011 -644,422 -664,400 -735,484 -134,883 2012 774,634 774,421 961,792 856,697 2013 562,103 514,754 521,432 434,254 2014 741,495 667,978 634,781 962,576 2015 668,790 607,897 519,752 655,814 5-Yr Total 2,102,601 1,900,651 1,902,275 2,774,458
———Company——— —Industry Composite— Period Operating Operating Operating Operating Ending ROR (%) ROE (%) ROR (%) ROE (%) 2011 -8.0 -11.6 2.6 6.5 2012 8.1 13.2 7.8 17.4 2013 4.7 8.1 8.3 18.6 2014 6.1 9.8 5.8 14.8 2015 5.1 8.1 5.6 12.3 5-Yr Avg 3.7 5.9 6.0 14.0 PROFITABILITY TESTS
Comm & Pre-tax Ben Paid Exp to NOG Operating Invest to NPW NPW to Tot NOG to Return on Net Total Year & Dep & Dep Assets Tot Rev Equity Yield Return 2011 138.7 13.6 -0.7 -8.0 -11.6 4.18 5.49 2012 89.9 14.7 0.8 8.1 13.2 3.55 3.70 2013 75.4 14.2 0.5 4.7 8.1 4.00 3.72 2014 85.9 14.6 0.6 6.1 9.8 4.46 5.01 2015 87.2 14.0 0.5 5.1 8.1 4.58 4.58 5-Year Avg 92.2 14.2 0.4 3.7 5.9 4.18 4.50
(*) Pre-Tax Invest Total Return quarterly calculation based on more limited quarterly data - see Calculation Specifications.
NET OPERATING GAIN ($000)
Product Line 2015 2014 2013 2012 2011 Ordinary life 110,224 29,302 19,618 62,086 -93,972 Group life 117 -232 -4 -163 87 Supplementary contr 848 1,730 672 370 204 Individual annuities 413,896 639,664 450,846 765,047 -391,751 Group annuities 78,400 37,911 15,689 22,936 24,488 Individual A&H 1,300 -2,058 2,387 2,044 7,179 Group A&H … … 476 -2,367 -87 Other 3,112 -38,338 25,070 -75,531 -210,548 Total 607,897 667,978 514,754 774,421 -664,400
ACCIDENT & HEALTH STATISTICS ($000)
Net Premiums Net Premiums Loss Exp. Underwriting Year Written Earned Ratio Ratio Results 2011 8,828 246.8 -12,996 2012 4,322 4,322 105.8 14.9 -895 2013 3,195 3,195 1.1 39.8 1,890 2014 3,471 3,471 158.4 29.4 -3,048 2015 2,593 2,593 21.1 22.4 1,467 Current Year Experience:
Non-can. 15 15 999.9 1.9 -524 Guarant renew 2,578 2,578 0.3 22.5 1,991
INVESTMENT GAINS ($000)
—————————Company————————— Net Realized Unrealized Inv Capital Capital Year Income Gains Gains 2011 1,798,787 -71,084 600,601 2012 1,575,520 187,371 -105,095 2013 1,857,788 6,678 -87,178 2014 2,216,879 -33,197 327,794 2015 2,461,008 -88,145 136,062 5-Year Total 9,909,983 1,623 872,184 ——————Company—————— -Industry
Composite-Pre-tax Invest
Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) 2011 7.0 4.2 4.2 5.5 4.4 5.4 2012 -12.4 3.6 4.1 3.7 0.7 5.2 2013 17.9 4.0 4.1 3.7 5.4 5.3 2014 19.3 4.5 4.4 5.0 2.6 5.2 2015 11.0 4.6 4.4 4.6 0.8 5.0 5-Yr Avg 8.5 4.2 4.3 4.5 2.8 5.2
(*) Pre-Tax Invest Total Return quarterly calculation based on more limited quarterly data - see Calculation Specifications.
BALANCE SHEET STRENGTH
The following text is derived from A.M. Best’s Credit Report on Pacific Life Group (AMB# 069720).
Capitalization:Pacific Life’s total adjusted capital (TAC) increased by 8.2% to approximately $8.5 billion at year-end 2015, compared to $7.8 billion at year-end 2014, primarily due to net income of $537 million, strong investment performance, and unrealized capital gains of $138 million. PLIC’s risk adjusted capitalization levels increased in 2015 due to strong operating performance. A.M. Best notes that Pacific Life’s risk-based capitalization ratios typically exhibit volatility due to its sizeable variable annuity market risk. However, over recent years, volatility has decreased due to mitigation
strategies Additionally, PLIC continues to employ a statutory capital hedge to maintain a minimum RBC of 300% under severe stress scenarios as part of its overall enterprise risk management program. NAIC RBC was very strong at 632% for year end 2015
Pacific Life’s TAC has grown significantly in recent years, increasing by approximately $2.2 billion from year-end 2010 to year-end 2015. The increase is partially attributable to $450 million of 6.00% internal surplus notes issued in 2010 and organic earnings growth from positive statutory operations. Surplus notes represented 21% of surplus as of year-end 2015. A.M. Best recognizes that surplus notes are debt instruments that have the expectation of repayment. Therefore, A.M. Best views surplus notes as a lower quality of capital than retained earnings or paid-in capital.
Current BCAR:254
CAPITAL GENERATION ANALYSIS ($000)
——————Source of Surplus Growth—————— Pre-Tax Net Realized Unrealized
Adjusted Capital Income Capital Year Gain Gains Taxes Gains 2011 -644,422 -71,084 19,978 600,601 2012 774,634 187,371 213 -105,095 2013 562,103 6,678 47,349 -87,178 2014 741,495 -33,197 73,517 327,794 2015 668,790 -88,145 60,893 136,062 5-Yr Total 2,102,601 1,623 201,950 872,184
—————Source of Surplus Growth—————
Change Change % Chg in Other in in Year AVR Changes C&S C&S 2011 -417,514 262,690 -289,708 -4.9 2012 -65,076 -193,501 598,120 10.7 2013 194,065 -300,534 327,786 5.3 2014 -98,516 -195,395 668,665 10.3 2015 -50,302 -14,585 590,927 8.2 5-Yr Total -437,342 -441,325 1,895,791 5.8 QUALITY OF SURPLUS ($000)
Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus 2011 1,599,396 … 1,622,062 2,355,523 2012 1,599,426 … 1,613,593 2,962,083 2013 1,770,861 … 1,495,955 3,236,071 2014 1,771,090 … 1,488,251 3,912,211 2015 1,771,318 … 1,480,139 4,511,023
Year-End Asset Valuation Adjusted Year C&S Reserve C&S 2011 5,576,981 660,790 6,237,771 2012 6,175,101 725,866 6,900,968 2013 6,502,887 531,801 7,034,688 2014 7,171,552 630,317 7,801,869 2015 7,762,480 680,618 8,443,098 LEVERAGE ANALYSIS
————————Company———————— -Industry Composite-C&S NPW & Dep Change C&S
to Surplus to Total in NPW to Surplus Year Liab(%) Relief(%) Capital & Dep(%) Liab(%) Relief(%) 2011 15.8 10.6 1.0 12.3 11.9 3.8 2012 17.0 3.7 1.2 32.9 11.9 3.6 2013 16.2 3.0 1.3 14.6 12.0 4.1 2014 16.7 2.8 1.2 -0.5 12.3 3.8 2015 16.8 2.2 1.1 6.3 11.9 4.1
CEDED REINSURANCE ANALYSIS
—————————Company————————— -Industry Composite-Face Affil Unaffil Total Total Amount Reins Reins Reins Surplus Reins Reins Reins Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage 2011 213,153,461 … 2.5 2.5 10.6 43.2 3.2 151.5 2012 198,463,665 … 2.7 2.7 3.7 41.2 3.4 169.8 2013 191,704,029 … 2.6 2.6 3.0 42.5 3.4 171.3 2014 186,665,655 … 2.2 2.2 2.8 42.0 3.2 164.1 2015 153,602,718 … 2.5 2.5 2.2 41.6 3.6 168.4
The following text is derived from A.M. Best’s Credit Report on Pacific Life Group (AMB# 069720).
Liquidity:Pacific Life proactively manages its investment portfolio so as to maintain a favorable liquidity position. The company’s strong cash flows and stable liability structure have provided significant liquidity benefits on an historical basis. Pacific Life’s relatively higher proportion of policy loans results in a lower than average allocation to fixed income investments. However, the company does maintain a portfolio of short-term instruments to meet unexpected cash outflows, such as U.S. Treasuries and marketable long-term fixed maturity securities (including 144A securities). In addition, Pacific Life retains additional backup liquidity in the form of internal funding mechanisms and third party sources. Given its current composition of liabilities, A.M. Best believes the company’s existing asset allocation provides solid liquidity protection under various stress scenarios to meet its cash flow needs.
PLIC maintains a $700 million commercial paper program, utilized from time to time for short-term liquidity needs. A $400 million revolving credit facility serves as a back-up line of credit for the commercial paper program and matures in 2019. PLIC is also a member of the Federal Home Loan Bank (FHLB) of Topeka where it has approval to advance amounts up to 40% of its general account assets provided it has available collateral. At year-end 2014, the company had no outstanding borrowings from the FHLB of Topeka.
On October 18, 2013, PL&A entered into a new Advances and Security agreement with Federal Home Loan Bank of San Francisco (FHLBSF) which expands financing availability from FHLBSF. This agreement expands the amount and duration of borrowing and allows PL&A to borrow up to 50% of capital and surplus out to 7 years.
Pacific LifeCorp has a revolving credit agreement with various banks for a $600 million borrowing facility, which matures in 2019. Additionally, the group also retains the ability to engage in public or private debt capital raising efforts, and could embark on a public sale of up to 49% of common stock in the intermediate stock company as a financing alternative, although there are no plans to do so.
LIQUIDITY ANALYSIS
———————————Company——————————— Operating Non-Inv Delnq &
Cash Quick Current Grade Bonds Foreclsd Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital 2011 1,582,327 35.5 66.6 38.0 0.0 2012 2,611,466 32.8 67.8 36.7 0.1 2013 3,163,191 32.8 67.3 24.0 0.0 2014 3,765,645 38.1 70.4 21.9 0.0 2015 3,994,074 33.7 71.5 21.9 0.0 ————Company———— ——Industry Composite—— Mtg & Cred Affil
Ten Lns Invest Quick Current Year & RE to Cap to Capital Liquidity Liquidity 2011 122.3 39.3 51.1 89.3 2012 108.1 36.6 49.4 88.8 2013 115.8 38.4 48.4 87.9 2014 106.0 38.3 47.4 87.9 2015 106.5 37.5 45.7 87.6
The following text is derived from A.M. Best’s Credit Report on Pacific Life Group (AMB# 069720).
Investments: Pacific Life’s general account invested assets totaled approximately $62.4 billion at year-end 2015. Invested assets are primarily comprised of public/private corporate bonds (56% of invested assets), loan backed and structured securities (7% of invested assets), commercial mortgage loans (18% of invested assets) and cash and other short-term investments (3% of invested assets). Additionally, Pacific Life has allocated a portion of its surplus to private equity. The company also maintains a high level of policy loans, which are very low risk and represent approximately 12% of invested assets. Policy loans generate attractive spread-based income primarily from leveraged COLI business written in 1986 and earlier.
INVESTMENT YIELDS
Cash & Invest. Net Short- —Real Estate— Exp. Year Yield Bonds Stocks Mortgages Term Gross Net Ratio 2011 4.18 5.78 0.73 5.79 0.40 20.41 3.29 11.37 2012 3.55 5.71 0.66 6.08 0.19 21.78 3.33 13.12 2013 4.00 5.45 3.02 5.69 0.13 23.53 4.14 12.73 2014 4.46 5.36 1.76 5.48 0.07 25.31 5.11 9.48 2015 4.58 5.02 1.70 6.24 0.16 24.66 5.12 8.36
Investments - Bond Portfolio:On a statutory basis, Pacific Life’s $34.5 billion bond portfolio, as of year-end 2015, included 5% in below investment grade securities (BIG) bonds, and the overall bond portfolio represented roughly 63% of general account invested assets. While below investment grade bonds are well within industry averages, its exposure to NAIC class 2 bonds is elevated relative to the industry. The bond portfolio yield remains strong, despite a low yield environment, and was 85% invested in corporate and government bonds, 10% in RMBS and ABS and 5% in CMBS. The sector allocation to corporate bonds remains well diversified with a GAAP book value of $32.8 billion, at year end, invested as follows: Utilities (20%), Industrials (18%), Consumer Noncyclical (20%), Financials (13%), Energy (9%), Telecom (10%), Real Estate (7%), and Consumer Cyclical (3%). The net unrealized gain position of the portfolio was $1.3 billion at year-end 2015 on a statutory basis. The corporate bond portfolio has global diversification in primarily developed economies outside of the U.S.
Pacific Life’s structured security portfolio includes residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS). The vast majority of RMBS was invested in prime non-government agency backed bonds with modest amounts of sub-prime and Alt A investments. The absolute level of RMBS and CMBS continues to decline over time and credit losses have remained modest.
INVESTMENTS - SECURITIES
Current Year Distribution of Bonds By Maturity
————Years———— Yrs-Avg 0-1 1-5 5-10 10-20 20+ Maturity Government 0.2 0.7 0.6 0.2 1.5 15 Gov’t Agencies & Muni 0.3 0.7 0.6 0.5 0.3 10 Industrial & Misc 7.7 19.9 42.5 9.2 14.7 9 Hybrid Securities … 0.1 … 0.0 0.3 18 Total 8.1 21.4 43.7 10.0 16.8 10
2015 2014 2013 2012 2011 Bonds (000) 34,523,849 30,013,106 27,693,978 25,711,427 24,127,203 US Government 1.9 2.1 0.7 0.8 0.2 Foreign Government 1.4 1.8 2.3 2.4 1.7 Foreign - All Other 24.5 26.1 27.2 27.7 25.9 State/Special Revenue - US 2.5 3.2 4.1 4.4 6.4 Industrial & Misc - US 69.3 66.1 64.9 64.0 64.4 Hybrid Securities 0.4 0.6 0.6 0.7 1.3 Affiliated … … 0.1 0.0 0.0 Private Issues 39.6 36.9 39.3 39.7 35.4 Public Issues 60.4 63.1 60.7 60.3 64.6 Bond Quality (%) 2015 2014 2013 2012 2011 Class 1 43.0 46.0 45.0 44.7 50.3 Class 2 51.9 48.8 49.2 46.2 40.7 Class 3 4.0 4.1 4.3 5.4 6.0 Class 4 0.6 0.7 1.0 2.9 2.3 Class 5 0.2 0.1 0.1 0.8 0.6 Class 6 0.4 0.3 0.4 0.1 0.2
Investments - Equity Portfolio:Pacific Life’s equity related investments represented less than 1% of its investment portfolio at year-end 2015.
INVESTMENTS - EQUITIES 2015 2014 2013 2012 2011 Stocks (000) 2,428,050 2,338,404 2,035,421 1,954,062 1,879,081 Unaffiliated Common 0.0 0.1 0.4 0.4 2.8 Affiliated Common 99.1 98.9 98.0 97.7 94.2 Unaffiliated Preferred 0.9 1.0 1.6 1.8 3.0
Investments - Mortgage Loans and Real Estate:The commercial mortgage portfolio represents roughly 15.5% of assets at year-end 2015 on a statutory basis, and the amount of direct real estate investments was minimal, comprising less than 1% of total investments. The company maintains a well-diversified mortgage loan and real estate portfolio diversified among office buildings, resorts, apartment complexes, retail properties and hotels with modest amounts of mixed use, industrial and mobile home communities.
INVESTMENTS - MORTGAGE LOANS & REAL ESTATE
2015 2014 2013 2012 2011 Mortgages (000) 8,811,938 8,073,647 7,942,674 7,241,694 7,403,735 Commercial 99.2 99.8 99.9 100.0 100.0 Residential 0.8 0.2 0.1 0.0 0.0 2015 2014 2013 2012 2011 Real Estate (000) 182,386 193,881 204,203 221,375 222,430 Property Occupied by Co 79.9 79.1 78.8 75.8 75.7 Property Held for Inc 20.1 20.9 21.2 24.2 24.3
INVESTMENTS - OTHER INVESTED ASSETS
2015 2014 2013 2012 2011 Other Inv Assets (000) 10,709,972 11,782,993 10,509,934 10,472,581 10,426,975 Cash 2.5 0.7 0.0 0.1 2.8 Short-Term 11.7 23.0 14.9 18.1 18.7 Schedule BA Assets 13.1 12.2 13.5 14.2 10.7 All Other 72.7 64.2 71.6 67.6 67.7
HISTORY
Date Incorporated:01/02/1868 Date Commenced:05/01/1868
Domicile:NE
Originally incorporated in 1868 as The Pacific Mutual Life Insurance Company of California, the company was reincorporated in 1936 as Pacific Mutual Life Insurance Company (Pacific Mutual Life) and officially became a mutual company in 1959. Following the passage of California’s mutual holding company legislation, Pacific Mutual Life converted to a mutual holding company structure in 1997 through the formation of Pacific Mutual Holding Company. Concurrently, Pacific Mutual Life converted to a California domiciled stock life insurance company, issued all of its capital stock to an intermediate stock holding company named Pacific LifeCorp and continued its corporate existence under the name Pacific Life Insurance Company (PLIC). Pacific Mutual Holding Company is controlled by members who are policyholders and currently own 100% of the voting stock of Pacific LifeCorp. Pacific Mutual Holding Company is legally required to retain not less than 51% of the voting stock of Pacific LifeCorp, and Pacific LifeCorp must hold all of the voting stock of PLIC. The remaining voting stock of Pacific LifeCorp may be sold to the public, although this is not contemplated in the foreseeable future. This structure provides the group with greater financial flexibility in its capital management, including access to additional funding from the public markets. At the time of the company’s conversion to a mutual holding company, PLIC established a closed block for certain individual life policies, with related assets of $271 million at year-end 2013.
In 1999, PM Group Life Insurance Company, a wholly-owned subsidiary of PLIC, domiciled in Arizona, secured its license to conduct business in the state of New York and changed its name to Pacific Life & Annuity Company (PL&A).
In 2005, the company sold the group insurance businesses of PLIC and PL&A to an unrelated third party. The business included medical, dental and life coverage for small and large group employers. The transaction was structured as a coinsurance arrangement and effectively eliminated the company’s exposure to the group medical market.
Also in 2005, ACG, then a subsidiary of Pacific LifeCorp, acquired Seattle-based Boullioun Aviation Services from WestLB AG. The transaction effectively doubled the size of ACG’s commercial aircraft leasing business, placing it among the largest operating lessors in the industry. On December 31, 2009, Pacific LifeCorp contributed its entire ownership in ACG to PLIC.
On September 1, 2005, PLIC transferred its legal domicile from the State of California to the State of Nebraska. On June 29, 2007, Pacific Mutual
Holding Company transferred its legal domicile from the State of California to the State of Nebraska.
In 2005, Pacific Alliance Reinsurance Ltd. (PAR Bermuda) was formed to provide reinsurance exclusively to PLIC for no lapse guarantee benefits. PAR Bermuda is a Bermuda-based life reinsurance company 100% owned by Pacific LifeCorp. In 2007, Pacific Alliance Reinsurance Company of Vermont (PAR VT) was incorporated and is a wholly owned subsidiary of PLIC. PAR VT is licensed as a special purpose financial insurance company under the laws of the State of Vermont and was formed to reinsure certain no lapse guarantee benefits issued by the Company. Effective October 1, 2010, all the reinsurance ceded to PAR Bermuda was novated to PAR VT, consolidating the in force no lapse guarantee reinsurance into one captive entity.
In 2013, Pacific Baleine Reinsurance Company (PBRC) was incorporated and is a wholly owned subsidiary of PLIC. PBRC is licensed as a special purpose financial insurance company under the laws of the State of Vermont and was formed to reinsure certain level term insurance policies issued by the Company as well as certain no lapse guarantee rider benefits not ceded to PAR VT.
Pacific Life Re Limited (PL Re) was formed in 2008 following the acquisition by Pacific LifeCorp of the International Life Reinsurance segment of Scottish Re Group Limited. PL Re provides reinsurance to insurance and annuity providers in the United Kingdom, Ireland, and selected markets in Asia.
In August 2011, PLIC and Pacific Life Reinsurance (Barbados) Limited (PLRB), a newly formed insurer and wholly owned subsidiary of Pacific LifeCorp, acquired Manulife Financial (Manulife) domestic and international life retrocession businesses, respectively. Upon closing the transaction, PLIC retroceded to PLRB, the majority of the domestic retrocession business it assumed from Manulife.
In October 2012, the Company formed Pacific Annuity Reinsurance Company (PARC), which is organized and licensed as an Arizona-domiciled pure captive reinsurance company and is subject to regulatory supervision by the Arizona Department of Insurance. PARC was formed to reinsure benefits provided by variable annuity contracts and contract rider guarantees issued by PLIC. Base annuity contracts are reinsured on a modified coinsurance basis and the contract guarantees are reinsured on a coinsurance with funds withheld basis. The effective date of the reinsurance was December 1, 2012. PLIC initially ceded 5% of its existing variable annuity business to PARC with plans to cede 5% of new business issued. Depending on how the business develops, PLIC may increase the quota share ceded to PARC over time until 100% of the variable annuity business is reinsured. PARC was initially formed as a wholly owned subsidiary of PLIC. On December 28, 2012, PLIC distributed all of PARC’s outstanding shares of common stock as a non-cash dividend to Pacific LifeCorp of $63 million.
MANAGEMENT
Officers:Chairman, Chief Executive Officer, President; James T. Morris, Executive Vice President, Chief Financial Officer; Adrian S. Griggs, Executive Vice President; Mary Ann Brown(Investment, Corporate Risk Management, Fund Advisory & Reinsurance), Executive Vice President; Dewey P. Bushaw(Retirement Solutions Division), Executive Vice President;
Richard J. Schindler(Life Insurance Division), Senior Vice President, Chief Risk Officer; Joseph E. Celentano, Senior Vice President, Chief Marketing Officer; Christopher van Mierlo(Retirement Solutions Division), Senior Vice President, Chief Accounting Officer; Edward R. Byrd, Senior Vice President, General Counsel; Sharon A. Cheever, Senior Vice President; Kevin R. Byrne(Finance & Risk Management, Retirement Solutions Division), Senior Vice President; Thomas Gibbons(Corporate Treasury, Tax & Enterprise Consulting), Senior Vice President; Tod M. Nasser(Investment Management), Senior Vice President; Andrew Oleksiw(Corporate Development), Senior Vice President; T. Anthony Premer(Real Estate Investments), Senior Vice President; Kevin M. Roddy(Finance, Life Insurance Division), Senior Vice President; Carol R. Sudbeck(Corporate ), Senior Vice President; Philip A. Teeter(Technology, Retirement Solutions Division), Senior Vice President; Dawn M. Trautman(Product & Strategy Management, Life Insurance Division), Vice President, Secretary; Jane M. Guon, Vice President, Treasurer; Joseph W. Krum
Directors:Sharon A. Cheever, Adrian S. Griggs, Jane M. Guon, Lawrence F. Harr, James T. Morris.
REGULATORY
An examination of the financial condition was made as of December 31, 2012, by the insurance department of Nebraska. The 2015 annual independent audit of the company was conducted by Deloitte & Touche, LLP. The annual statement of actuarial opinion is provided by Gary L. Falde, Vice President and Chief Actuary.
Reserve basis:(Current ordinary business): From the Life Division - 2001 CSO 2.0%, 2.5%, 3.0% and 3.5%; CRVM. (Current annuity business): Annuity 2000 3.75% and 2012 IAR 4.50%. From the Corporate Division -1994 GAR 2.00%. From the Retirement Solutions Division - (Current annuity business): Annuity 2000 4.00%; 1994 VA MGDB 3.75%; 2012 IAR 3.5% to 4.0%; 1994 GAR 4.0%.
REINSURANCE
Pacific Life has ceded and assumed life reinsurance programs in place with a number of professional reinsurers and life insurance companies. The life reinsurance ceded is well diversified among more than 15 companies, including RGA Reinsurance Company, Swiss Re Life & Health America, Inc., M Life Insurance Company and London Life Reinsurance Company. Maximum net retention, effective June 1, 2007, is $12,000,000 on individual life plans and $20,000,000 on survivorship life plans.
In 2005, Pacific Alliance Reinsurance Ltd. (PAR Bermuda) was formed to provide reinsurance exclusively to Pacific Life for no lapse guarantee benefits. PAR Bermuda is a Bermuda-based life reinsurance company 100% owned by Pacific LifeCorp. In 2007, Pacific Alliance Reinsurance Company of Vermont (PAR VT) was incorporated and is a wholly owned subsidiary of Pacific Life. PAR VT is licensed as a special purpose financial captive insurance company under the laws of the State of Vermont and was formed to reinsure certain no lapse guarantee benefits issued by the Company. Effective October 1, 2010, all the reinsurance ceded to PAR Bermuda was novated to PAR VT, consolidating the no lapse guarantee reinsurance into one captive entity.
Pacific Life Re Limited (PL Re) was formed in 2008 following the acquisition by Pacific LifeCorp of the International Life Reinsurance segment of Scottish Re Group Limited. PL Re provides reinsurance to insurance and annuity providers in the United Kingdom, Ireland, and selected markets in Asia.
In August 2011, PLIC and Pacific Life Reinsurance (Barbados) Limited (PLRB), a newly formed insurer and wholly owned subsidiary of Pacific LifeCorp, acquired Manulife’s domestic and international life retrocession businesses, respectively. Upon closing the transaction, PLIC retroceded to PLRB, the majority of the domestic retrocession business it assumed from Manulife.
FINANCIAL INFORMATION
BALANCE SHEET ($000) - December 31, 2015
Assets Liabilities
Total bonds 34,523,849 +Net policy reserves 46,710,661 Total preferred stocks 21,103 Policy claims 663,921 Total common stocks 2,406,946 Deposit type contracts 2,134,561 Mortgage loans 8,811,938 Interest maint reserve 199,928 Real estate 182,386 Comm taxes expenses 224,926 Contract loans 7,324,669 Asset val reserve 680,618 Cash & short-term inv 1,517,653 Contingency reserve 2,701 Other invested assets 1,405,119 Other liabilities 395,744 Prems and consids due 224,637
Accrued invest income 455,526 Tot liab w/o sep accts 51,013,059 Other assets 1,901,711 Separate account bus 54,466,300 Tot assets w/o sep accts 58,775,539 Total liabilities 105,479,359 Separate account bus 54,466,300 Common stock 30,000 Surplus notes 1,771,318 Paid in & contrib surpl 1,185,439 Unassigned surplus 4,511,023 Other surplus 264,700 Assets 113,241,838 Total 113,241,838
+Analysis of reserves; Life $26,799,781; annuities $19,672,736; supplementary contracts with life contingencies $3,278; accidental death benefits $34; disability active lives $154,423; disability disabled lives $10,719; miscellaneous reserves $50,515; accident & health $19,175.
SUMMARY OF OPERATIONS ($000)
Premiums: Death benefits 1,356,076 Ordinary life 2,846,783 Matured endowments 713 Individual annuities 5,750,201 Annuity benefits 616,857 Group life 34 Disability benefits 1,285 Group annuities 440,078 Surrender benefits 6,394,131 Acc & health other 2,593 Acc & health benefits 3,212 Total premiums 9,039,689 Int on policy funds 65,853 Supplementary contracts 735 Supplementary contracts 473 Net investment income 2,461,008 Other benefits 6,969 Amort interest maint res 32,276 Incr life reserves 3,409,552 Comm & exp reins ceded 168,650 Incr a & h reserves -2,665 Res adj on reins ceded -1,108,752 Change in reserves 389 Other income 1,330,812 Commissions 808,649 Mgt and/or service fee 100,085 Comm exp reins assumed 20,447 Insur taxes lic & fees 81,767 General ins expenses 611,071 Net transf to sep acct -2,039,627 Misc operating expense 6,777 Other disbursements 0 Total 12,024,503 Total 11,341,930 Gain from operations before FIT & div to policyholders... 682,572 Dividends to policyholders: life... 13,782 Gains from operations after dividends to policyholders... 668,790 Federal income taxes incurred... 60,893 Net gain from operations after FIT and dividends... 607,897
CASH FLOW ANALYSIS ($000)
Funds Provided Funds Applied
Gross cash from oper 11,617,326 Benefits paid 8,242,865 Transf from sep account 2,092,019 Comm, taxes, expenses 1,507,261 Long-term bond proceeds 2,780,582 Long-term bonds acquired 7,315,680 Mortgage loan proceeds 840,724 Other invest acquired 2,691,201 Other invest proceeds 1,209,289 Other cash applied 163,727 Other cash provided 111,160
Decr cash & short-term 1,269,634
