PEP Coalition

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Pre-need sales continue sliding

BusinessWorld
June 6, 2009

MANILA – Pre-need firms continued to see their revenues slide in the first quarter despite selling more plans, data from the Securities and Exchange Commission (SEC) showed.

Revenues fell by almost a fifth to P3.2 billion, even as the number of plans sold rose to 62,882 from 53,825 in the same period last year.

The public continued to stay away from education and pension plans, preferring life plans, whose sales jumped by almost half to P2.03 billion in peso terms and by more than two-fifths to 52,173 in terms of plans sold.

Sales of pension plans, which face competition from other investment products, continued to decline, as well as of education plans, which carry the stigma of failed pre-need companies unable to pay clients.

The number of pension plans sold dropped by almost a third to 9,442, and sales, by more than half to P1.05 billion. Education plans fared worse with the number of plans sold reduced by more than half to 1,267, and sales, by more than three-fifths to P173.19 million.

Pre-need sales have been falling since January 2008.

Caesar T. Michelena, president of the Philippine Federation of Pre-need Companies, explained that customers nowadays prefer to buy more but cheaper plans.

Mr. Michelena, who also heads Cocoplans, Inc., said life plans continue to register growth because of the active effort of companies to market these products and customers’ negative perception of education and pension plans.

“We are still looking at growth but maybe not as substantial because of the economic conditions,” he said.

On Monday, the SEC ordered pre-need companies to avail the services of independent auditors that would review whether they are managing their trust funds according to its standards or not. The auditors would submit their findings on July 15.

Mr. Michelena, however, does not see this having an effect on the industry’s performance.

“It’s really more of administrative requirement… It would have no major impact overall,” he said, pointing out that pre-need companies already employ external auditors to verify the valuation of their trust fund assets.

Pre-need companies now number 22 from 24, after the regulator revoked the license of one firm to sell plans and suspended another due to financial difficulties. — Don Gil K. Carreon

as of 06/06/2009 2:26 AM

June 6, 2009 Posted by | International Newspapers/Web News | | 6 Comments

SEC should function only as a registry

BusinessWorld
March 17, 2009
To Take a Stand by Oscar P. Lagman, Jr.

In answer to questions in the Senate hearings on the Legacy Group of Companies, Securities and Exchange Commission Chair Fe Barin said that they renewed the licenses of several pre-need companies with reserve deficiencies to enable them to find new investors and turn their floundering business around. That statement evinced a lack of business sense on the part of the SEC chair.

How could those floundering pre-need companies find new investors when the grim and critical situation of the pre-need industry was the subject of sensational front-page stories of the dailies as far back as 2001? No investor is going to put more money in an industry on the verge of collapse.

True, Barin was appointed chair of the SEC only in September of 2004 and the problem besetting the pre-need industry may have had no implication to her, but the prominence that media had been giving the mess that pre-need companies had placed themselves in should have caught the attention of a person of her circumstance and therefore she should have been abreast of developments that had great impact on the general public. I am sure Barin had read and heard about it even before she was appointed to the SEC.

Her expecting new investors to infuse money into blundering companies reflects ignorance of business operations, a shortcoming that can be traced to her having spent her entire professional life in government service, as secretary of the Monetary Board for 26 years.

The commissioner overseeing the Non-traditional Securities and Instruments Department, Jesus Martinez, is another lawyer. While he may have directly participated, organized, and acted as adviser in the formation of over 40 local and foreign corporations and may have had extensive experience in mergers and acquisitions, joint-venture negotiations, and investments, he was not involved in the mainstream activity of those corporations.

He may be a good lawyer, but he cannot be regarded as a successful businessman who would be competent to discern if a pre-need company has sound business plans and a long-term investment strategy that would enable it to meet the reserve requirement of the SEC.

He displayed his knowledge of the law when in response to Senator Enrile’s question he rhetorically asked with conspicuous confidence how the sale of a house to his financially independent son by the son of Celso de los Angeles of Legacy or how a Ford Expedition bought from his (Martinez’s) son by a Legacy-owned bank could be connected to him. (His abundant confidence must stem from his belief that the languid Ombudsman Merceditas Gutierrez would not find anything to charge him with.) His rhetorical question is as bald-faced as De los Angeles asking his lawyer if it is illegal to fall in love when a music video showing him singing to his newfound love was exposed publicly.

Barin and Martinez, having spent their entire professional life in the practice of law, may not have the skills to determine the viability of a pre-need company.

However, there was nothing to prevent them from “assembling” the experts who could sift through the jargon and complexities of the pre-need industry and be able to explain in clear layman’s terms the fundamentals of a financially viable pre-need company and the warning signs in a company in danger of failing to meet its financial obligations. That assembly of experts should have constituted the Non-traditional Securities and Instruments Department of the SEC and should have had a director who either had formal training in actuarial science or had substantial work experience in the pre-need industry.

In the hearing conducted by Senator Roxas all by his lonesome, he told, benignly, the director of the Non-traditional Securities and Instruments Department, Jose Aquino, to send someone else knowledgeable about actuarial calculations at the next hearing after Aquino was unable to answer intelligently a series of questions posed by the senator.

In a subsequent hearing, Senator Ponce Enrile, told Aquino bluntly, “I would be ashamed if I were you for always turning to your staff for every question asked you.”

It was obvious from his pathetic appearance in the Senate hearings that Aquino was not at all qualified to be the head of his department, maybe not even as a staff member.

I asked a professional actuary familiar with the management and organizational setup of the SEC if there is a competent actuary in that regulatory body.

He said the SEC has only a bunch of accountants. Accountants are not necessarily knowledgeable of Financial Management, although many Finance managers have an Accounting background. But accountants without grounding or experience in Financial Management are not qualified to determine the viability of pre-need companies.

The trust-fund deficiencies of the pre-need companies were the outcome of flawed actuarial calculations.

A trust fund is considered insufficient when it is less than the estimated total amount of payment for tuition fees or burial costs the pre-need company would have to pay in the future on behalf of its plan holders. This amount is referred to in the industry as the actuarial reserve liability.

The ARL is computed on the basis of assumptions on market demand, interest rates, inflation rates, price trends, competitive pressure, rate of lapsed plans, and in the case of educational plans, tuition increases.

The assumptions must be realistic to compute the ARL correctly. Pure accountants, such as those accountants at SEC, will not come up with realistic projections.

Accountants were brainwashed during their student days with the dictum “Anticipate no profit, provide for all losses.” I know because I am an Accounting graduate. It is very hard to make people with such mind-set to think as managers. I found that out when I was teaching Management Accounting and Controls at AIM (the President’s younger brother Diosdado Jr. was among my students in that course). I had a hard time getting those scholars sent by a large and reputable CPA firm to accept concepts of controllership such as depreciation as a source of funds.

So I say once again, more emphatically this time after hearing SEC Chair Barin and Commissioner Martinez, that the SEC should be relieved of the regulatory function. It should serve as a mere registry. Then one with 30 years service as secretary of the Monetary Board and who happened to be married to someone from Lubao who worked in Diosdado Macapagal’s law office becomes suitable to be head of the agency.

March 19, 2009 Posted by | Columns and Editorials | , , , , , | 2 Comments

The pre-need mess: Who’s to blame?

By Neal Cruz (As I See It)
Philippine Daily Inquirer
First Posted 04:13:00 03/02/2009

WHAT’S happening to our pre-need industry? Formerly a sunrise industry, it is now setting under cloudy skies.

Strictly speaking, the problem is not the making of the pre-need companies. It was the making of the Department of Education (DepEd), when it lifted the 14-percent limit on tuition fee increases.

The pre-need industry operates on the principle of expectation. You pay now to the pre-need company, in installments, what you expect you will need in the future, be it education, memorial, or pension plans. The company invests your money and pays off what you need when you need it. It makes actuarial studies on how much it would need year after year to pay off the plan holders. The study starts from the presumption that tuition fees cannot increase beyond 14 percent.

So what happened when the limit was lifted and tuition fee increases hit the roof? Naturally, the firms didn’t have enough cash to pay the needs of planholders as guaranteed by their plans. Their actuarial studies went haywire. That is why only the traditional education plans (open-ended, meaning the company will pay whatever amount the schools charge) are affected. The memorial and pension plans are not affected at all.

When it began to sell traditional education plans in the mid-1980s, Pacific Plans Inc. (PPI) of the Yuchengco Group appeared to be the savior every parent was waiting for. Imagine, unlike other plans where the value of the benefit is fixed at the time of availment, traditional educational plans undertake to pay the tuition fee of the beneficiary at the time of availment, regardless of cost.

All these went out the window when the DepEd deregulated tuition fee increases, which then skyrocketed to 16 to 28 percent a year.

The Asian financial crisis and now the global financial crisis also took their toll on the investment projections of the pre-need companies.

In the case of PPI, it had chosen to invest in Napocor bonds which are fairly secure. But some of them are still locked up in dollar deposits that would not mature until next year.

The planholders naturally want PPI to fulfill its obligations now. A group called the Parents Enabling Parents (PEP) Coalition filed charges against PPI, claiming that planholders have been robbed of their hard-earned money and that the rehabilitation plan was just a sham proceeding to cover up PPI’s obligations.

The Yuchengcos finally threw in the towel and sold PPI—to Noel Cariño, the wonder boy of Asian Spirit. But what happened to PPI is also happening to other pre-need companies.

It is in this respect that the condition of the pre-need companies in distress may be differentiated. As already stated, PPI’s assets are invested in safe Napocor bonds and dollar deposits, and under the court-approved rehabilitation plan, holders of traditional education plans will get dollar-denominated entitlements in 2010.

College Assurance Plan, on the other hand, is differently situated as its trust assets were placed in a mix of investments including equities and real estate projects which have not done well. Legacy Consolidated Plans of Celso de los Angeles is something else. It is a scam, according to the Bangko Sentral ng Pilipinas (BSP), which has filed charges against De los Angeles and other officers of the Legacy Group. Legacy claims that its trust funds are intact, but the BSP says Legacy is operating what is like a pyramid scam—paying claimants with money collected from new planholders. When collections from new plans diminish, the whole operation collapses.

What the whole mess reveals, however, is that the Securities and Exchange Commission (SEC), which supervises pre-need companies, was woefully remiss in its duty. It did not monitor the pre-need companies closely, and therefore failed to institute measures to prevent their collapse. It is only now that the SEC has woken up, after the pre-need mess collapsed on our heads. The SEC’s job is preventive, not punitive or remedial as it is doing now, so that planholders and investors do not lose their investments.

The SEC recently came out with rules requiring pre-need companies to adopt capital build-up plans—but it was too late. Members of the Federation of Pre-Need Companies (FPNC) said they would comply but will require more time to do so. In the event that a company is unable to increase capital, the SEC will not renew its license to sell additional plans. If this happens, the company will sink into a deeper hole.

The only other recourse is for a company to rehabilitate and/or liquidate. In the event of liquidation, the question is whether or not the company has enough assets to cover its trust obligations.

Important, therefore, is where trust assets are invested. Considering how the global financial markets are right now, the most prudent place to invest funds would be government-issued bonds or securities as these enjoy sovereign guarantees.

Capital build-up is of course the preferred course of action by planholders. They would like the owners to plow in more capital to at least cover the deficiencies expected from the low return from their investments so that they may continue to service planholders.

But why would anyone want to put in good money after bad? Any additional investments would make sense only if there is hope for recovery.

During liquidation, planholders will have to share in what is available of the trust funds. The courts will have to distribute the same as equitably and fairly as possible. That is why some planholders would rather go with previously approved rehabilitation plans and look forward to getting their money, plus interest, rather than wait for something that may not come at all.

What is the lesson in all these? Government regulatory agencies, like the SEC, should do their jobs well.

March 2, 2009 Posted by | Columns and Editorials | , , , , , , | Leave a comment

Securities and Exchange Commission may require pre-need firms to boost trust fund deposits

The Philippine Star

Feb. 26, 2009

MANILA, Philippines – The Securities and Exchange Commission (SEC) is studying the possibility of requiring pre-need firms to beef up their trust fund deposits to further safeguard the interest of the investing public.

Sen. Mar Roxas earlier called on the SEC to increase pre-need firms’ deposit contributions to the trust fund from the current five percent to 70 percent to ensure payment of their obligations to planholders.

According to the SEC, most pre-need companies have willingly set their trust fund contribution rates higher than the required five-percent minimum for the first year.

SEC documents show that eight pre-need firms offering education plans have an average 25.17-percent contribution to trust funds in the first year and an average of 58.87 percent in the first five years. These companies are Cocoplans, Danvil Plans, Eternal Plans, Grayline Plans, Loyola Plans Consolidated, Philam Plans, Sun Life Financial Plans and Trusteeship Plans.

For pension plans, the average trust fund contributions of 16 firms amount to 21.77 percent for the first year and 59.18 percent for the first five years.

Firms with contributions higher than the minimum amount required are Ayala Plans, Caritas Financial Plans, CityPlans, Cocoplans, Danvil Plans, First Country Plan, First Union Plans, Grayline Plans, Loyola Plans, Mercantile Careplans, Permanent Plans, Philam Plans, Provident Plans, Sun Life, Transnational Plans and Trusteeship Plans.

Only six firms offering life plans have contributions above the minimum required, averaging 14.9 percent in the first year and 51.8 percent in the first five years.

From a surplus in 2007, the local pre-need industry has incurred a trust fund deficiency of P46.83 billion last year.

Industry data showed that the end 2007 surplus was based on an assumed yield of 12 percent on their trust funds. Trust funds of pre-need firms reached P74.66 billion as against liabilities of only P67.86 billion.

Roxas also asked the SEC to prohibit the use of trust funds by trustee banks to extend loans to a pre-need firm’s directors officers, stockholders and to invest in the pre-need company itself.  — Zinnia dela Peña

February 26, 2009 Posted by | Philippine Newspapers/Web News | , | Leave a comment

SEC may require pre-need firms to increase trust fund deposits

Lala Rimando, abs-cbnNEWS.com/Newsbreak | 02/25/2009 7:30 PM

The congressional hearings on the pre-need industry have influenced the Securities and Exchange Commission to flex their regulatory muscles over one of the most popular but now moribund financial services industry.

The SEC on Wednesday said it is considering to require pre-need firms to set aside more funds out of the amount the clients invest in their pre-need plans. If ever, this would mean that pre-need firms will now set aside a bigger portion–70 percent, instead of the current 5 percent–out of the amount clients pay the firms in the first year.

In a statement, SEC chairperson Fe Barin said “the commission will study the feasibility and sustainability of increasing the contribution to the trust fund from the first installment of premium paid on a plan.”

Plan holders usually pay their premiums over an average of 5 years.

Legislators questioned during the hearings why firms were allowed to consume up to 95 percent of the clients’ first year premium payments. The firms explained these mostly covered their marketing expenses.

Legislators, including senator Mar Roxas, called on the SEC to safeguard the investments of the plan holders, suggesting that SEC drastically increase the amount they set aside out of the clients money.

Pre-need firms are currently mandated to only set aside an 45 to 51 centavo for every peso they receive from clients. The SEC has previously allowed the pre-need firms to consume the remaining 55 to 49 cents of clients’ money for their operating expenses, among others.

Pre-need firms deposit this portion of clients money in trust funds, which trust banks manage in behalf of the pre-need firms.

The imminent collapse of the industry has been blamed on the wide gap between the actual and target amount the trust fund has grown into.

This gap has reached a whopping P46.83 billion as of end June 2008, a far cry to the P6.8 billion surplus the industry recorded as of end-2007.

The aggressive investment growth rates of up to 12 percent have been blamed for this wide trust fund gap. Actual pace of growth for pre-need trust investments during the period was only about 4 percent, already lower than the 6 percent basis for computing the P46.83 billion trust fund deficit.

This trust fund gap is expected to have further widened in December 2008 since the global and coordinated financial meltdown have pushed investment rates to lower levels in the second half of the year.

The health of the pre-need firms’ trust funds is considered key to the future actions the industry players will decide on. Several pre-need firms are thinking of various options, including unwinding the plans and paying all plan holders, whether claiming this year or years later.

This puts a question on the timing of SEC’s effort to increase the trust fund deposits. If the pre-need firms are already mulling ceasing operations, why impose the reforms just now?

Healthier

In the SEC statement, Barin said most pre-need companies have willingly set their trust fund contribution rates higher than the required 5 percent minimum for the first year.

SEC said 8 pre-need firms offering education plans have an average 25.17 percent contribution to trust funds in the first year and an average of 58.87 percent in the first five years. These are:

  • Cocoplans
  • Danvil Plans
  • Eternal Plans
  • Grayline Plans
  • Loyola Plans Consolidated
  • Philam Plans
  • Sun Life Financial Plans
  • Trusteeship Plans

For pension plans, the SEC said average trust fund contributions of 16 pre-need firms amount to 21.77 percent for the first year and 59.18 percent for the first five years. These firms are:

  • Ayala Plans
  • Caritas Financial Plans
  • CityPlans
  • Cocoplans
  • Danvil Plans
  • First Country Plan
  • First Union Plans
  • Grayline Plans
  • Loyola Plans
  • Mercantile Careplans
  • Permanent Plans
  • Philam Plans
  • Provident Plans
  • Sun Life
  • Transnational Plans
  • Trusteeship Plans

Only six firms offering life plans have contributions above the minimum required, averaging 14.9 percent in the first year and 51.8 percent in the first five years. These are:

  • Cocoplans
  • Eternal Plans
  • Loyola Plans
  • Paz Memorial Services
  • St. Peter Life Plan
  • Trusteeship Plans

The SEC did not provide a list of the firms that complied only with the minimum requirement nor did it indicate if any firms have failed to make the minimum required contribution to the trust fund from the premium paid for plans.

as of 02/25/2009 7:34 PM

February 25, 2009 Posted by | Philippine Newspapers/Web News | , , | Leave a comment

SEC mulls increase of pre-need’s trust fund deposit

GMANews.TV

Feb. 25, 2009

MANILA, Philippines - The Securities and Exchange Commission (SEC) is eyeing to increase pre-need companies’ trust fund deposit contributions, a move seen to protect planholders’ rights and prevent the industry’s collapse. 

The proposal is partly in response to calls made by Senator Mar Roxas who earlier suggested that the agency should drastically increase trust fund deposit contributions from the current five percent scheme to 70 percent. Contributions are used to pay customers’ plans once these fall due. 

The local pre-need industry has a P46.83-billion trust fund deficiency as of end-June as investment earnings shrink due to the global crisis. Moreover, the December figure is expected to incur a much bigger deficit since the impact of the global crisis was stronger in last year’s second half. 

As a result of the trust fund deficit, many companies are thinking of various options to settle their obligations, most of which involve unwinding plans and paying all plan holders.

As of December 31, 2007, the industry had a surplus of P6.8 billion based on an assumed yield of 12 percent on their trust funds.

However, in the second quarter of 2008, when the financial meltdown grew worse with each passing month, the 12 percent assumption was no longer achievable. In fact, six percent was even a tough goal for some of the companies.

SEC chairperson Fe Barin said “the commission will study the feasibility and sustainability of increasing the contribution to the trust fund from the first installment of premium paid on a plan.”

Preneed companies willingly set higher trust fund contributions

Barin noted though that most pre-need companies have willingly set their trust fund contribution rates higher than the required 5 percent minimum for the first year.

Moreover, Barin said the five-year average trust fund contributions of pre-need firms even exceeded the 45 percent for life plans or 51 percent for other type of plans’ required minimum.

SEC documents show that eight pre-need firms offering education plans have an average 25.17 percent contribution to trust funds in the first year and an average of 58.87 percent in the first five years.

These firms include Cocoplans, Danvil Plans, Eternal Plans, Grayline Plans, Loyola Plans Consolidated, Philam Plans, Sun Life Financial Plans, and Trusteeship Plans.

For pension plans, the average trust fund contributions of 16 firms amount to 21.77 percent for the first year and 59.18 percent for the first five years.

Firms with contributions higher than the minimum amount required are Ayala Plans, Caritas Financial Plans, CityPlans, Cocoplans, Danvil Plans, First Country Plan, First Union Plans, Grayline Plans, Loyola Plans, Mercantile Careplans, Permanent Plans, Philam Plans, Provident Plans, Sun Life, Transnational Plans and Trusteeship Plans.

Only six firms offering life plans have contributions above the minimum required, averaging 14.9 percent in the first year and 51.8 percent in the first five years.

These firms are Cocoplans, Eternal Plans, Loyola Plans, Paz Memorial Services, St. Peter Life Plan, and Trusteeship Plans.

The SEC did not provide a list of the firms that complied only with the minimum requirement nor did it indicate if any firms have failed to make the minimum required contribution to the trust fund from the premium paid for plans. - GMANews.TV

February 25, 2009 Posted by | Philippine Newspapers/Web News | , , | Leave a comment

SEC gives pre-need firms 2-month extension to build up their capital

The Philippine Star
Feb. 23, 2009
By Zinnia B. Dela Peña

MANILA, Philippines – The Securities and Exchange Commission has extended for two months, or until April 15, the deadline for pre-need firms to submit their capital build-up program.

The extension was in response to the request of the Federation of Pre-need Plan Companies for additional time to comply with the capital requirement.

The additional time would also allow the pre-need firms to prepare their financial statements for 2008 and reveal their financial position.

The financial health of pre-need companies has been deteriorating, with the industry incurring a trust fund deficiency of P46.83 billion last year. This was in contrast to a P6.8-billion surplus in 2007.

According to industry data, the end-2007 surplus was based on an assumed yield of 12 percent on their trust funds. Trust funds of pre-need firms reached P74.66 billion as against liabilities of only P67.86 billion that year.

Industry sources said up until February last year, the trustee banks were confident of earning 12 percent for the balance of the year.

However, when the global economic crisis erupted in the second quarter of 2008, and growing worse with each passing month, the 12 percent assumption was no longer achievable.

Amid tough business conditions, most pre-need firms are thinking of ways to either to stay afloat or just cease operations.

Coming to the rescue, the SEC has given pre-need firms three years or from 2009-2012 to fund the deficiency between their trust fund and reserves. 

Pre-need companies are required to submit a five-year projected financial statement together with assumptions taken, as well as a 15-year financial program addressing the old basket of plans that are commercially impracticable, taking into consideration the respective maturity values of the plans.

The SEC has also relaxed the rules on investments by pre-need firms by allowing more investments in real estate, unlisted shares of stock, as well as planholder loans.

Investments in real estate may exceed the prescribed 15 percent of the total trust fund equity provided that the additional real estate properties are income-generating. They may also invest in memorial lots if they sell pre-need life plans.

Investments in unlisted shares will be allowed as long as the issuers are financially stable, solvent and have positive track records of growth.

February 23, 2009 Posted by | Philippine Newspapers/Web News | , | Leave a comment

Good pre-need law urgent…not constitutional change

By Evangeline Escobillo
Philippine Daily Inquirer
First Posted 22:50:00 02/22/2009

The House of Representatives is not doing enough for the two million pre-need customers, of which more than half are victims of pre-need companies that collapsed over the last seven years.

Instead, our congressmen are laboring to change the Constitution.

On Feb. 15 last year, about 10,000 farmers, students, professionals and workers were on the streets of Makati asking the President to step down.

The issue was the alleged big kickback behind the Philippine National Broadband Network (NBN-ZTE) project where the whistle-blower was “kidnapped” and his life threatened.

President Macapagal-Arroyo and her husband were among those allegedly involved in the NBN-ZTE project worth $329.5 million or P16.5 billion.

Corruption charges

Gloria is perceived by many to have cheated massively in the 2004 elections and, therefore, an illegitimate president amid the worsening series of corruption charges.

Last week’s Senate hearings were focused on World Bank (WB) reports implicating high-ranking officials including the President’s husband in the reported corruption in WB-funded projects.

A recent survey revealed that this administration is the most corrupt in the nation’s history.

Many are waiting for the 2010 presidential elections as a constitutional deadline to end Gloria’s illegitimate tenure.

However, there are signs that Gloria wants to remain in power after 2010.

Last Friday, the Speaker of the House together with the majority of Congressmen sponsored House Resolution 737: Resolution Proposing Amendments to Sections 2 and 3, Article XII of the Constitution to Allow the Acquisition by Foreign Corporations and Associations, and the Transfer or Conveyance Thereto, of Alienable Public Lands and Private Lands seeking to allow foreign entities to own lands not exceeding 25 hectares, and to explore and develop the natural resources through joint venture or production sharing arrangement.

Purportedly, this is to attract foreign investment.

I am strongly against this move now because once the resolution is on the floor, the whole Constitution will be opened to amendments.

Amendments

There is no limit to possible amendments, including extending the term of office of elected officials, granting the President permanent immunity from prosecution, or even changing the form of government to parliamentary for Gloria to stay in power.

Recently, I started sending text messages to some Congressmen including House Speaker Prospero Nograles explaining my dismay. “Why is it important to you now to amend the Constitution? Why now? Can’t it wait after 2010 presidential elections?”

Nograles answered and invited me to join the public hearing. So I told him that I am currently studying at the KSG Harvard but still continuing to be involved in our nation’s affairs.

I pointed out to him that one of the pressing issues is the agony of pre-need victims. He is also a victim of the Legacy Group according to newspaper reports.

Like Legacy, other defunct pre-need companies collected money from parents or retirees with the promise to pay future college tuition fees of their children or retirement benefits. But it declared bankruptcy when the contractual benefits started to be paid.

His next reply was they are studying it. Still studying it? Better to act now!

It is urgent to study the collapse of more than 50 pre-need companies in the last seven years; the original pre-need bill which was filed in 2003, intermittently discussed in Congress and lost its essence because of strong lobby of the industry federation; neglect of Securities and Exchange Commission (SEC) in establishing rules and regulations that could have prevented the collapse of pre-need companies; mismanagement of pre-need trust funds; wrong practices of accountants and pre-need actuaries and irresponsible and unprofessional management.

Unsound pre-need firms

Had Congress timely acted on these, unsound pre-need companies would have been closed and would not have victimized more parents or retirees who lost hard-earned life savings for the college education of their children and retirement.

Nograles gave comforting assurance that Congress will return the money of pre-need victims.

I retorted: “Where are you going to get the money? Are you aware that the biggest company, CAP, has a fund deficiency of more than P15 billion in 2005? How much would it be if Pacific Plan, Legacy and 50 more closed pre-need companies are included? Where will you get more than 10 percent of our GDP to just return the money entrusted by the victims to pre-need companies? Not from our budget, which is still in deficit despite selling of government assets?”

Please, Congress, drop the Constitutional change for the meantime.

Focus now on crafting a really good pre-need law. See how pre-need victims can be compensated equitably; and punish the culprits.

Give hope to our future!

(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a former insurance commissioner and SEC volunteer-actuary. Feedback at map@globelines.com.ph. For previous articles, please visit .)

February 22, 2009 Posted by | Columns and Editorials | , , , , , | 1 Comment

SEC extends deadline for pre-need firms’ capital build-up programs

GMANews.TV
Feb. 21, 2009

MANILA, Philippines - The Securities and Exchange Commission (SEC) has given troubled pre-need companies two more months to file their capital build-up programs from the original deadline of Feb. 15.

The extension would allow pre-need firms to prepare a scheme based on their end-2008 audited financial statements, also due on Apr.15, SEC Chairman Fe B. Barin said in a text message.

But an industry official said they needed more time, adding that most troubled pre-need firms have yet to decide whether they should continue operating.

“Is it enough time? Probably not, since each company is assessing whether to continue, should continue and can continue,” Jose Miguel M. Vazquez, Federation of Pre-need Companies of the Philippines president, said in a text message.

“It is not just a question of capital. Each company is reviewing whether there is still a future [in this business] and this cannot be determined in such a short time,” he added.

In December, the commission relaxed rules on capital build-up and asset valuation, after the pre-need federation warned that the industry could collapse if regulations were not eased.

The group said some companies were considering stopping operations and were just trying to pay plan holders due to their huge trust fund deficits.

The commission’s nontraditional securities and investment department said a pre-need company applying for a longer period to build up capital must submit a letter acknowledging the trust fund deficiency or capital impairment based on the valuation report or audited financial statements for 2007.

The SEC may shorten the period if the financial conditions of the company improve during the implementation of the program.

The pre-need industry was said to have posted a P46.83-billion trust fund deficiency at the end of June 2008 due to shrinking earnings from investments following the slowing global economy. The figure was expected to have worsened at the end of last year. 

Industry figures showed that as of December 31, 2007, the industry’s trust fund recorded a surplus of P6.8 billion based on an assumed yield of 12%., which was viable until February last year.

When the US-led financial crisis worsened in the latter part of last year, companies lowered growth projections due to sliding demand. — Don Gil K. Carreon, BusinessWorld

February 21, 2009 Posted by | Philippine Newspapers/Web News | , , | Leave a comment

SEC extends deadline for pre-need capital buildup plans

ABS-CBN News
Feb. 20, 2009

Following several requests, the deadline for the submission of pre-need firms’ capital buildup programs has been extended to April 15, 2009 from February 15, the Securities and Exchange Commission (SEC) said Friday.

SEC chairperson Fe Barin said the new deadline would allow member firms of the Federation of Pre-Need Plan Companies to meet the requirement.

For his part, SEC commission secretary Gerard Lukban said the extension will allow pre-need firms to prepare their financial statements for the entire 2008, instead of just interim reports, so they can fully reflect their financial conditions.

He explained that the submission of 2008 corporate financial statements is also due on April 15 so all pre-need firms are expected to have these ready by then.

Early on, the SEC responded favorably to the plea of pre-need companies by relaxing its rules and allowing the industry more time to raise capital and shore up trust funds amid the global financial crisis.

The pre-need industry recorded a P46.83-billion trust fund deficiency at end-June 2008 due to shrinking earnings from investments, and the December 2008 figure is seen to be worse since the impact of the crisis was stronger in the second semester last year.

Because of the huge deficit, many companies are thinking of various options, among them, unwinding the plans and paying all plan holders claiming this year or years later. The idea is that all plan holders should be able to get a piece of the limited pie.

Industry figures showed that as of December 31, 2007, the industry had a surplus of P6.8 billion based on an assumed trust fund yield of 12 percent.

Trust funds totaled P74.67 billion and liabilities stood at P67.86 billion. Up until February 2008, the trustee banks were confident of earning 12 percent for the rest of 2008.

When the financial meltdown hit in the second quarter of last year, and grew worse with each passing month, the 12 percent assumption became unachievable. In fact, 6 percent was even a tough goal for some of the companies.

SEC non-traditional securities and investments director Jose Aquino said the commission has set the requirements and conditions for pre-need firms’ applications on multi-year capital and trust fund buildup and the terms and conditions they must observe once these are approved.

For one, the SEC asked pre-need firms to first submit individual letters acknowledging their trust fund deficiency or capital impairment based on the actuarial validation, valuation report or audited financial statements for 2007.

Applicants were also required to submit a projected financial statement covering a period of five years together with assumptions taken.

as of 02/21/2009 5:11 PM

February 21, 2009 Posted by | Philippine Newspapers/Web News | , , | Leave a comment

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