For Broker Dealer Use only. Not for Use with the Public. “Life Insurance Pricing, Underwriting & Trends” Presented by: Rodger Hergendrader - VP, Underwriting M Financial Group & Wayne Tonning – VP, M Financial Distribution Pacific Life Insurance Company For Broker Dealer Use only. Not for Use with the Public. Page 1 of 32

Two Generic Categories of Life Insurance: Term and Cash Value Term Life Insurance Pays the policy face amount if the insured dies during the policy term, which is a specified number of years, such as 10 or 20 years, or to a specified age, such as age 65. If the insured lives beyond the set term, the policy expires, meaning that it terminates with no value. Term life insurance usually provides either a level or decreasing death benefit. Premiums either increase with age or remain level. Term policies with level death benefits and increasing premiums are commonly referred to as being renewable. Thus, yearly renewable term (YRT) – also called annual renewable term – provides term insurance whose premiums increase yearly. Page 2 of 32

Two Generic Categories of Life Insurance: Term and Cash Value Cash Value Life Insurance Combines term insurance and internal savings – called the cash value – within the same contract; that is, it accumulate funds that are available to the policyowner, much as with a savings account with a bank. A policy’s full cash value is not available on some policies if they are terminated within the first few policy years. Rather, a type of “penalty for early withdrawal” is applied in the form of a surrender charge that is subtracted from the policy’s cash value to yield what is often called the policy’s cash surrender value or simply surrender value. Thousands of variations of cash value policies exist, consistent with insurers’ product differentiation and target market strategies. Virtually every cash value policy falls into one of two categories: (1) universal life insurance or (2) whole life insurance. Page 3 of 32

Universal Life Universal life (UL) insurance policies are flexible-premium, adjustable death benefit contracts whose cash values and coverage periods depend on the premiums paid into them and can range to the whole of life to shorter periods. UL policies are usually nonparticipating (i.e., they are not eligible for policy dividends), but they routinely share in the insurer’s operational results via non-guaranteed policy elements other than dividends. Non-guaranteed policy elements, also called current assumptions, are those that are not guaranteed and that the insurer may change (more or less favorably), subject to contractual guarantees. They commonly include mortality and loading charges and interest credits. Page 4 of 32

Whole Life Whole life (WL) insurance typically requires the payment of fixed premiums and promises to pay a death benefit whenever the insured dies and, therefore, is life insurance intended to remain in effect for the insured’s entire lifetime. WL policies often are participating (i.e., are eligible for policy dividends). Insurers selling par policies typically price them conservatively. This conservative pricing means that the policies as a group are highly likely to generate profits – called surplus. Following each year’s operations, the insurer’s board of directors decides how much of these surplus funds – called divisible surplus – may be passed on to par policies in the form of dividends. Page 5 of 32

Life Insurance Pricing The pricing of all life insurance policies involves four basic factors: mortality, investment earnings, expenses and taxes, and persistency. Life Insurance Pricing Factors: Insurer Perspective Policyholder Perspective (Pricing Factors) (Assumptions) Mortality Experience + Mortality Margin === Mortality Charge Investment Earnings - Interest Spread Interest Credit Expenses & Taxes Expense Margin Loading Charges Page 6 of 32

Life Insurance Policy Mechanics Beginning Cash Value For Universal Life, which has flexible premiums, policy coverage remains in force as long as the cash value remains positive (the policy lapses when the cash value goes to zero For Whole Life, the fixed premium schedule ensures a positive cash value for life. (+) Premium (-) Loading Charges (-) Mortality Charge (+) Interest Credit (=) Ending Cash Value (-) Surrender Charge (=) Surrender Value Page 7 of 32

Mortality Charge The Importance of pre-funding to reduce the net amount at risk (NAR) in order to reduce late duration mortality charges (e.g. Cost of Insurance or COI) Illustration of a Level-Premium Cash Value Policy Funded to Endow at Age 21 Page 8 of 32

Putting It All Together Life insurance pricing components can be and are mixed in different ways by insurers to accomplish different marketing and profit objectives. The precise mix will be driven by the competing interests of policy performance and profitability, coupled with the insurer’s underlying mortality, investment, expense, and persistency experience. Strong results in each category can lead to good policy performance and sound profitability for the insurer. Page 9 of 32

Universal Life , Indexed Universal Life & Variable Universal Life Universal Life (UL) Portfolios typically includes bonds & mortgages Guaranteed minimum crediting rate Continued downward pressure on portfolio yields Variable Universal Life (VUL) 100% opportunity and risk transfer No guaranteed minimum crediting rate in the subaccounts Indexed Universal Life (IUL) Indexed-based interest credit upside potential with downside protection Some VUL products offer all three options within one product Page 10 of 32

For Broker Dealer Use only. Not for Use with the Public. UNIVERSAL LIFE For Broker Dealer Use only. Not for Use with the Public. Page 11 of 32

Bonds & Mortgages Help Support UL Crediting Rates Page 12 of 32

History of Declining Interest Rates Rates in Percentage% Source: Moody’s BAA, access date 3/1/17 Page 13 of 32

Portfolio Yields Chase New Money Rates Rates in Percentage% Source: Moody’s BAA, access date 3/1/17 Page 14 of 32

Source: Moody’s BAA, access date 3/1/17 BAA 7 Year Rolling Average a Good Proxy for UL Crediting Rate Movements Rates in Percentage% Credit Rating used by Moody’s **MVP Fixed LT Source: Moody’s BAA, access date 3/1/17 Page 15 of 32

New Money Rates Still Below Portfolio Yields Rates in Percentage% Source: Moody’s BAA, access date 3/1/17 Page 16 of 32

Continued Downward Pressure on UL Crediting Rates based on Moody’s Data Analytics New money rates are approximately 50bps* below General Account portfolio yields Approximate 50bps* of downward pressure on UL crediting rages Source Data: Moody’s BAA access date 3/1/17 This is not indicative of Pacific Life’s crediting rate process *basis points Page 17 of 32

Declining UL Crediting Rate Projection Rates in Percentage% Source: Moody’s BAA, access date 3/1/17 Page 18 of 32

Declining Crediting Rate Implications Carrier Actions: current and guaranteed crediting rate reductions, IUL cap rate reductions, premium restrictions or added policy charge for larger premium dollars into the fixed account. New Business Policyholder Implications Fund appropriately (i.e., with conservatism) Run downside scenarios (i.e., lower crediting rates) to assess appropriate funding In-Force Business Policyholder Implications Perform annual reviews Use in-force illustrations to assess impact of lower crediting rates (include scenario testing) Take appropriate action to keep the policy on track Additional premiums Reduce face amount 1035 exchange Page 19 of 32

Indexed UL How Does it Work? To provide strong growth opportunity with protection, Indexed Accounts credit interest based on an equity index without directly participating in any stock or equity markets. The actual interest credited will never be less than the Floor or greater than any Caps imposed by the carrier. Typical Interest Crediting Process The index performance, as a percentage, is measured over the Segments Term. The Index Performance Rate is then multiplied by the Segment’s Participation Rate. The Participation Rate is the percentage of the Index Performance Rate. The product of these two rates is called the Growth Rate. The Growth Rate is applied to the Segments Growth Cap (which limits it on the upside) and its Floor (which limits it on the downside and is also the guaranteed minimum interest rate). Page 20 of 32

For Broker Dealer Use only. Not for Use with the Public. UL vs. IUL vs. VUL For Broker Dealer Use only. Not for Use with the Public. Page 21 of 32

UL vs. IUL vs. VUL Background for following historical charts: Historical UL crediting rates are actual rates of one* UL product introduced in the early 1980’s S&P 500 historical returns include dividends and a 50 bps investment management fee assumption. The returns are calendar year returns 1/1 to 12/31. IUL historical crediting rates are hypothetical based on a 11% cap, 0% floor, and a 100% participation rate on the historical returns of the S&P 500 without dividends (calendar year returns). *Pacific Life VersaFlex Source: Yahoo Finance, access date 3/1/17 Page 22 of 32

UL vs. IUL vs. VUL Source: Yahoo Finance, access date 3/1/17 Historical returns are no guarantee of future performance. Page 23 of 32

25 Year Look Back Strong Equity Market Returns Source: Yahoo Finance, access date 3/1/17 Historical returns are no guarantee of future results. Page 24 of 32

17 Year Look Back IUL Upside Potential with Downside Protection Source: Yahoo Finance, access date 3/1/17 Historical returns are no guarantee of future results. Page 25 of 32

Historical S&P 500 Total Returns Average long term (20 years or greater) historical S&P 500 total returns exceed 10% Minimum long term historical S&P 500 total returns exceed 7% 85% of 10 year S&P 500 total returns exceeds 5% Source: Yahoo Finance, access date 3/1/17 Page 26 of 32

Hypothetical IUL Results 90% of 25 year S&P 500 returns 1951-2015 with 10% growth cap and 0% floor exceed 5% AG 49 Historical Percentile Distribution* Cap Min 90% 80% 70% 60% 50% 40% 30% 20% 10% Max 8.0% 3.42% 4.22% 4.50% 4.70% 4.88% 5.10% 5.30% 5.46% 5.58% 5.75% 6.48% 8.5% 3.55% 4.43% 4.73% 4.94% 5.13% 5.37% 5.74% 5.88% 6.05% 6.79% 9.0% 3.69% 4.63% 4.95% 5.17% 5.38% 5.62% 5.85% 6.02% 6.16% 6.34% 7.09% 9.5% 3.82% 4.82% 5.16% 5.39% 5.63% 6.11% 6.29% 6.43% 6.62% 7.38% 10.0% 3.95% 5.00% 5.36% 5.86% 6.12% 6.37% 6.56% 6.70% 6.90% 7.68% 10.5% 4.07% 5.18% 5.56% 5.82% 6.09% 6.36% 6.61% 6.80% 6.96% 7.16% 8.00% 11.0% 4.18% 5.35% 6.30% 6.59% 6.85% 7.05% 7.21% 7.41% 8.30% 11.5% 4.29% 5.52% 5.93% 6.22% 6.51% 6.81% 7.08% 7.28% 7.45% 7.66% 8.59% 12.0% 4.40% 5.68% 6.10% 6.40% 6.71% 7.03% 7.31% 7.51% 7.69% 7.90% 8.89% 12.5% 4.52% 6.26% 6.58% 7.23% 7.73% 7.91% 8.13% 9.16% 13.0% 5.96% 6.42% 6.76% 7.42% 7.72% 7.95% 8.35% 9.42% 13.5% 4.74% 6.92% 7.26% 7.61% 7.92% 8.15% 8.34% 8.57% 9.66% * Percentage of AG 49 daily compound annual growth rates for 25-year periods from 1951-2015 that exceed shown rate (10,091 CAGRs). Source: PacificLife.com, access date 3/1/17 Page 27 of 32

Ultra Affluent Sales Distribution For Broker Dealer Use only. Not for Use with the Public. Page 29 of 32

Ultra Affluent Sales Show Balanced Product Distribution 2016 Trends Significant increase in PPLI sales Decline in survivorship sales perhaps due to higher estate tax exemption and estate tax uncertainty VUL continues to be M’s #1 product due to control and flexibility in a low cost product chassis Page 29 of 32

Life Insurance Product Considerations NLG Peace of mind (particularly attractive for older age clients) Lack of cash values Lock in price based on today’s low interest rate environment with no ability for upside UL Offers cash, less volatile crediting rates, guaranteed minimum crediting rate, and upside potential Low crediting rates with continued downward pressure Slow to react (e.g., lagging) when new money interest rates increase IUL Upside potential with downside protection More of a UL replacement than VUL May have higher charges Page 30 of 32

Life Insurance Product Considerations VUL Strong upside potential via separate account and provides cash Fund flexibility and control: separate account, fixed account, index account Transparency and low charges (UL like) Historical long term equity market results out perform bonds/mortgages Recommendation – Hedge Your Bets Use product or multiple carriers and products that offer options/flexibility for changing risk/reward profile, changing economy, and changing regulatory and tax environment Consider allocations to all product types and investment options Fund conservatively, monitor policy performance, and take corrective actions when needed VUL at 5-6% with high confidence interval and high upside potential for younger clients with long time horizons Consider MDNLGs Page 31 of 32

Critical In-Force Policy Management Items The importance of in-force policy reviews due to the non-guaranteed nature of product performance Policy maturity Products issued prior to 2009 may mature at age 95 or 100 Mature – Death benefit coverage ceases and cash value paid out with associated income tax consequences Many carriers reduce the face amount to the cash value and carry post maturity Importance of premium funding to drive high cash values Very expensive to get back on track in the attained age 90s Timing of no-lapse guarantee UL premium payments Late and early premium payments can reduce the guaranteed coverage period Must continue to review (i.e., do not file in a drawer never to be looked at again) Page 32 of 32