What We Need to Know About Pre-Need Companies
Monday, 15 August 2005
The situation as of December 2004:
■ The pre-need industry has sold almost 2.5 million plans. Of these, more than 70 percent, or 1.6 billion plans, are educational plans. Pension and memorial (or life) plans account for the remainder. This means Filipinos put a premium on education, and would rather invest in it than in products that are for retirement or burial purposes.
■ At any one time, about 10 percent of students enrolled in private schools are beneficiaries of educational plans. Most of them are enrolled in non-exclusive schools.
■ The problems besetting the pre-need industry—prompted by the brouhaha over the financial problems of College Assurance Plan, Pacific Plans, and lately, Platinum Plans—are just the beginning. There are about half a million plans that have been fully paid but not yet being availed of. About 400,000 plans are still actively being paid.
■ Almost 100,000 plans have lapsed, or those with premiums which have not been paid on time and have not been reinstated.
■ More than P100 billion worth of plans have been sold. Most of these were sold during the latter half of the 1990s when pre-need companies added educational plans in their product portfolios, or when new pre-need companies started offering educational plans.
■ A pre-need company is generally considered financially sound when its trust fund (or 51 percent of the total premiums paid by plan holders, invested to grow and meet future tuition payments) is sufficient to cover its computed Actuarial Reserve Liability (an approximation of all present and future tuition payments).
■ From the table, some companies, even the big ones, had incurred a trust fund deficit as of December 2004. In the case of Philamlife and Manulife, they regularized it by depositing additional assets to their trust funds by January. The Securities and Exchange Commission allows this in consideration of the delay in the computation of the final ARL for a certain period. (Usually the ARL for December is computed in January, so only then would companies know if they have deficits.) Himlayang Pilipino, Provident Plans, and Transnational Plans were able to fund their trust fund deficits only after the January deadline.
■ Some companies, which offer pension and/or memorial plans together with their education plans, incur trust fund surplus in one product and deficits in another. This is the case with both Loyola Plans and Grayline Plans. Both had surpluses in their trust funds for educational plans, but incurred deficits in their pension and life plans. Companies have to ask permission from SEC before they are allowed to use their surplus funds to subsidize the others.
Sources: Documents submitted to the SEC, various interviews, Senate hearings
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