Preneed industry’s problem: Interest earnings did not match expectations
Written by Jun Vallecera / Reporter
Monday, 09 February 2009 20:38
THE country’s preneed companies would not be so proud as to refuse an escape route by way of a bailout if and when such an opportunity presents itself in the future.
But a bailout, the president of the Philippine Federation of Preneed Companies said, would only be likely if the ongoing global financial crisis stretches far beyond current assessment.
Federation president Mike Vasquez said the group never asked for a bailout from the government or from anyone when it wrote a letter to the Securities and Exchange Commission (SEC) in August last year when the group first candidly told the regulator that the industry was facing tough challenges ahead.
That letter, dated August 28, 2008, highlighted a number of issues affecting preneed firms that the federation hoped the SEC would have a greater appreciation of to better appreciate the plight of their members.
“We did not talk of a bailout in our much-misunderstood letter of August 28, 2008.
This is not to say that the industry will not request for and accept assistance when circumstances call for it. Should the global economic crisis linger and its devastating effects become more felt, we will be grateful and open to every available option,” Vasquez said, quoting the federation’s position paper.
He said issues affecting the industry are much misunderstood, such as the issue of trust funds as supposedly mismanaged or stolen.
Vasquez said the industry’s trust funds, while potentially inadequate to meet demand as and when preneed plans mature in the future, are still intact in the hands of trustee banks and could not have been stolen.
“The major cause of any deficit that will arise is the mismatch between the yields that were assumed could be earned in the future and what it can actually earn given the prevailing economic and investment realities.
The preneed company has not stolen any money of the plan holders. It is intact in the trust fund,” he said.
The mismatch was brought about by changes in the economic structure not just in the Philippines but globally as well, changes that make it unlikely, particularly if the global financial crisis stretches out long into the future, for the preneed firms to deliver what they promise, Varela explained.
This was the problem that the industry cited before the SEC in its letter to the regulator last year, he added.
He said the problem remains that the interest earnings from the trust investment of preneed firms have not materialized as originally expected through actuarial calculation.
“It is this looming discrepancy that has caused the federation to send its August 28, 2008, letter to its regulator,” he said.
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