#123 | PacLife PDX 2 / PIA 6 / EPF Preview

Two weeks ago, PacLife filed the next version of PDX, the next version of PIA (its traditionally plain-vanilla IUL chassis) and the new Enhanced Performance Factor Rider. We now have a keyhole view into what the next generation of PacLife’s blockbuster IUL products will look like. Evaluating filings always leads to more questions than answers, so this post is designed simply to surface what might be coming with these products. It’s purely speculation and shouldn’t be considered anything other than that.

Much appears to stay the same. PacLife carried the form of the Performance Factor from PDX over to PDX 2 and added it to PIA 6 (see page 10 of the PIA 6 filing). As with the original PDX, the contracts do not even remotely explain how the Performance Factor works so we don’t actually know what the Performance Factor will look like until the products are released. My main criticism of PDX has always been that the unparalleled complexity and opacity of the Performance Factor means that no client will ever know why they got a particular Performance Factor. That is completely unacceptable. I was really hoping that PacLife would take this objection of mine off of the table but that is not the case. The disclosure of how the Performance Factor works appears to still be lacking. I can only see the filings, so perhaps PacLife is planning on sharing more of the story in other documents. I’m willing to hold out some hope.

The main new story is the addition of the Enhanced Performance Factor (EPF) Rider to both products, which assesses a charge to the assets in the policy and applies a multiplier to index credits on top of the Performance Factor built into the base contract. It’s a fairly straightforward and increasingly common design. What’s unique about the EPF is the sheer magnitude of the charges to fund the multiplier. Rider Design B has an asset charge for the first 20 years of 5.0% – yes, 5.0%. Not big enough for you? Rider Design C sports a 7.5% asset charge for the first 20 years. After that, both Design A and B scale down to lower charges of 2% and 3% respectively, which are still some of the highest asset-based charges in the industry.

My ballpark estimate is that Rider Design C will deliver an index return multiplier of approximately 185% and an effective net illustrated rate of about 9% before the application of the Performance Factor in the base contract. I have no idea whether or not the Performance Factors in PDX 2 and PIA 6 will be similar in structure or size to what’s currently in PDX because PacLife doesn’t explain how it works in the contract. My gut is that PDX 2 will carry the same Performance Factor over from PDX and, if so, you’ll be looking at effective illustrated rates of well over 11% with the EPF Rider Design C. PIA 6 will likely get a trimmed down version of the Performance Factor and will be tuned more for death benefit protection than accumulation. We’ll have to wait until the products are launched to see how the contract elements manifest in current pricing.

Long story short, PacLife is not sitting on its haunches. They’re apparently willing to sacrifice any semblance of the old, conservative PacLife we know and love in order to keep a death-grip on their spot at the top of the sales charts. These are strange times and they’re only getting stranger.