Apr. 20, 2009
The Securities and Exchange Commission (SEC) has prohibited Prudentialife Plans Inc. from selling new pre-need plans since last week, the company announced Monday.
Prudentialife said the SEC revoked the company’s dealer license for failure to meet the requirements of the corporate regulator’s Multi-year Capital and Trust Fund Build-up scheme.
Under the scheme, acceptable assets that can be contributed to plug any trust fund deficiency are income-generating real estate and unlisted shares that are not in any way related to the pre-need company.
“The assets we offered are real estate properties that have good values but are not yet income-generating. Aside from this, we offered unlisted shares of profitable companies but are affiliates of our pre-need company. The SEC did not accept these assets for contribution to our trust fund and capital,” Prudentialife said in a statement.
Despite this, Prudentialife said it will continue to service and honor the existing plans already sold to its planholders.
The SEC reported that Prudentialife should have P19.5 billion in its trust fund as of September last year. However, the company only reported P14.16 billion in its trust fund as of the said date.
The company blamed the global economic crisis and the impact of the controversy surrounding the Legacy Group as culprits behind the pre-need sector’s dilemma.
“The global economic crisis has affected a number of industries worldwide including the Philippine pre-need industry. The trust funds of the industry have not been earning their projected returns…Compounding the problem of the industry is the ongoing investigation of the Legacy fraud case. This has dragged down the confidence in our industry whose image has already been tarnished when major pre-need firms went down years ago,” Prudentialife said.
To address the situation, the Philippine Federation of Pre-Need Plan Companies Inc., of which Prudentialife is a member, was left with three options to consider. These include raising new capital based on the SEC’s multi-year funding scheme, taking an “orderly exit” from the industry and paying plan benefits as warranted, and seeking corporate rehabilitation.
as of 04/23/2009 9:01 PM
by Lala Rimando
Apr. 20, 2009
As a showcase of the Securities and Exchange Commission’s resolve to regulate the troubled pre-need industry well, SEC chair Fe Barin told the senate hearing Monday that it had prohibited Prudentialife Plans Inc. from selling new pre-need plans since April 16.
Barin told the Senate Committee on Trade, which is conducting the hearings on the controversial retail financial industry, that Prudentialife failed to present an acceptable proposal to address its capital and trust fund deficiencies.
In September 2008, SEC records showed that Prudentialife has P14.16 billion in “trust funds,” or the current market value of its investments. This amount, however, was more than P5 billion short of the SEC-required P19.5 billion “reserve funds,” or the amount that pre-need companies should be aiming for after they have invested their clients’ money over a period of time.
On February 2, Prudentialife submitted a Multi-year Capital and Trust Fund Build-up plan, which the SEC rejected. The regulator stood its ground even after the company appealed.
In an en banc decision last April 17, the SEC commissioners revoked the company’s 2009 dealers’ license, or its permit to sell new plans.
The company, however, said they would continue to service and honor their obligations to current clients.
Barin said they rejected Prudentialife’s proposal because it did not meet SEC’s requirement.
The acceptable assets to plug the gap between the company’s trust fund and the reserve fund should be, among others, (a) income-generating real estate, and (b) unlisted shares that are not in any way related to the pre-need company.
In a statement, Prudentialife said, “The assets we offered are real estate properties that have good values but are not yet income-generating. Aside from this, we offered unlisted shares of profitable companies but are affiliates of our pre-need company.”
It confirmed that, “The SEC did not accept these assets for contribution to our trust fund and capital.”
Previous lessons from the fall of industry giants, like College Assurance Plan (CAP) and Pacific Plans, in 2005 have led SEC to require that pre-need companies park their clients’ amortization payments only in safe investments.
CAP’s thunderous fall was mainly due to the decisions of the owners, the Sobrepenas, to invest the pre-need plan holders’ money in potentially high-yielding but very risky ventures. These included posh residential condominiums, high-end golf courses, the concession to operate Camp John Hay in Baguio, and the rights to operate the MRT rail company. When the beneficiaries of CAP’s educational plan holders were all set to enrol in school, the company could not come up with the cash to pay the tuition fees since the funds were still trapped in the non-earning ventures.
In the case of the Yuchengco-led Pacific Plans, a good part of the trust funds were invested in bonds issued by the investment arm of Rizal Commercial Banking Corp, which is part of the Yuchengco Group of Companies.
Prudentialife also has investments in real estate, including First Asia Realty Corporation, a part owner of SM Megamall. Its unit, Globe Asiatique, Inc. is a developer of various office, residential, and memorial properties.
The SEC and Prudentialife, however, did not specify which assets were included in the plan.
Prudentialife blamed the global economic crisis and the impact of the controversy surrounding the Legacy Group as culprits behind the pre-need sector’s dilemma.
“The global economic crisis has affected a number of industries worldwide including the Philippine pre-need industry. The trust funds of the industry have not been earning their projected returns,” Prudentialife said in the statement.
According to its website, the company used to realize returns that averaged 16.8 percent in 2006 for the assets it parked in its trust fund. As of June 2008, the yields have plummeted to just 4.87 percent.
“Compounding the problem of the industry is the ongoing investigation of the Legacy fraud case. This has dragged down the confidence in our industry whose image has already been tarnished when major pre-need firms went down years ago,” Prudentialife added.
The Legacy Group has three pre-need companies, which all closed in January. The syndicated estafa cases filed by bank regulator Bangko Sentral ng Pilipinas and state insurer Philippine Deposit Insurance Corporation have traced how the money of its 12 rural bank depositors and the pre-need clients ended up in companies controlled by businessman-turned-politician, Celso de los Angeles, Legacy’s founder.
The pre-need industry was already in the doldrums before Legacy hugged the headlines.
The Philippine Federation of Pre-Need Plan Companies admitted in January that, as of June 30, 2008, the gap between how much its 24 members have and should have set aside to cover future obligations to clients reached a staggering P46.83 billion.
They said this deficit continued to grow in the second half of 2008 as the US-led financial crisis shrank the market values of their investments.
The Federation, which had lobbied hard against stricter regulations and accounting standards in the past, said their members had three options: (a) raise new capital based on the SEC’s multi-year funding scheme, (b) take an “orderly exit” from the industry and paying plan benefits as warranted, or (c) seek corporate rehabilitation.
Prudentialife was one of the two who chose the first option. The other was Cocoplans, Inc. SEC approved the plan forwarded by Cocoplans.
Some of the other 22 existing pre-need companies with trust fund and capital deficiencies have yet to reveal their choice. The deadline for the first option was extended to and eventually expired last April 15.
In the past, the SEC, upon the prodding of the Federation, gave pre-need companies considerable leeway in making up for their trust fund deficiencies.
Under the scrutiny of the media and legislators, the SEC cannot afford to be as lenient as before.
Barin and the other SEC officials disclosed their decision on Prudentialife’s proposal before an audience of lawmakers and pre-need plan holders who have previously castigated the commission for being too soft on Legacy.
It did not help that Legacy owner Celso de los Angeles was a no-show at the senate hearing. The senators had ample time to grill SEC in the hope that the regulator turns out to be as guilty as the fraudsters in Legacy.
In earlier hearings, former SEC commissioner Jesus Martinez was alleged to have facilitated the approval of Legacy Consolidated’s dealers’ license at the time Martinez received “gifts”— a property and a vehicle—from Legacy.
Barin herself was dragged into the picture after it was reported that her husband obtained a sports utility vehicle from a Legacy executive. Senators called for her resignation, but she denied any wrongdoing.
This time, the SEC did not come empty-handed at the senate hearing. For naming Prudentialife and citing their recent decision, SEC seemed bent to show off that it is doing its job and has no sacred cows.
Prudentialife might as well be the sacrifice on the altar. It is one of the industry pioneers and has been around for 31 years. Its founder, Ambassador Francisco A. Alba, was the Philippine envoy to the Vatican from 2001 to 2003. What more, Alba was active in the Federation and has been vocal in issues hounding the industry.
As far as the pre-need industry is concerned, SEC tends to highlight the good rather than humiliate the bad. In February, it made public a list of pre-need companies that have voluntarily increased the portion of clients’ funds they are setting aside for future obligations. Prudentialife was not in that list.
SEC’s current boldness is almost unprecedented. In the past, SEC commissioners tried an iron hand as they started to introduce reforms, but later backed off when they were prevailed upon by industry players.
One commissioner told abs-cbnnews.com/Newsbreak before that they feared that being too rigorous with the reforms might financially choke the pre-need companies, leading to their closures. The commissioners were concerned that more plan holders would end up holding the bag if and when the pre-need companies close shop.
SEC’s decision to tell the world of Prudentialife’s plight is a test of that long-held worry. — with reports from Zen Hernandez, ABS-CBN News
ABS-CBN News (Feedback Section)
Feb. 3, 2009
by Concerned Readers
as of 02/03/2009 6:23 PM
MANILA, Philippines — With plan-holders shaken by the collapse of pre-need companies of the Legacy Group, the pre-need industry association on Wednesday assured the public that the 40-year-old industry could survive the current global turmoil.
Many of the companies will likely take the option of building up capital using the leeway allowed by the Securities and Exchange Commission, said Juan Miguel Vazquez, president of the Philippine Federation of Pre-need Plan Companies.
“Companies can now file for a capital buildup plan and those with approval can do so,” Vazquez said at a news briefing. “The plan holders will have no problems at all.”
Companies that cannot or are not willing to raise capital will have to stop selling new plans and inform all their plan-holders, Vazquez said.
“An orderly restructuring can be worked out between the company and plan-holders to protect all plan-holders,” he said.
Pre-need company officials at the briefing said the second option — to stop selling and undergoing restructuring — would likely be the exception rather than the rule.
“If there will be some going to option 2, what we can assure you is that it will be transparent and orderly,” Vasquez said.
The federation admitted that the tough global environment has diminished the value of the trust funds in which pre-need companies deposit their sales proceeds and are the source of payments for future obligations. Yields on these trust funds have gone down to six percent from the 12 percent assumed by most pre-need companies in the past.
The trust funds’ values are booked based on prevailing market prices, and consequently they have sustained huge losses, at least on paper — Vasquez emphasized that these were not actual losses.
Over 95 percent of them are invested in the Philippines, including about P65 billion in government securities, and some in the stock market.
Prudentialife Plans Inc. president Jose Alberto Alba said, “Historically, there were times when pre-need companies had deficiencies but it was corrected over time. These can be corrected over time.”
In a statement, Philam Plans chairman Jose Cuisia Jr. said: “Our plan-holders can be assured that their interests are protected with the company’s financial strength and investment expertise. We remain focused on the daily execution of our business and continue to provide our plan holders with the highest levels of service, as we continue to write new business and remain committed to meeting our plan holders’ needs.”
Philam Plans’ unaudited and interim financial statements submitted to the Securities and Exchange Commission show its trust funds at P30 billion as of end- 2008. The company said this was significantly more than the required reserves.
Philam Plans has over 300,000 plans in force. It said its liabilities were adequately covered by its trust fund investments, most of which were in liquid assets, such as government securities, and less than four percent in real estate and blue-chip stocks.
Sun Life Financial Philippines also said its local pre-need firm, Sun Life Financial Plans Inc., was well-capitalized and had enough funds to meet all obligations to all plan-holders.
“We are a prudent company by nature and we have always brought this prudence to our pre-need company,” Sun Life Financial Philippines president and chief executive Henry Herrera said in a statement.
“Rumors relating to the state of the industry are not reflective of Sun Life’s pre-need business, which continues to be strong and well-capitalized…. At Sun Life, our message to plan holders is crystal clear — we can and will continue to fulfill our obligations to our plan holders,” he added.
He said Sun Life’s capitalization was one of the highest in the industry and the company had a conservative investment portfolio of government bonds locked in at interest rates sufficient to cover its obligations.
“After 113 years of experience in the Philippines we have always met our obligations, no matter what the crisis and we will continue to do so. Of this we are very proud,” Herrera said.
The SEC has drafted a package of measures to provide breathing room to the battered pre-need industry, given a tough global financial environment. It has agreed to give the industry more time to build up capital. Talks are underway to allow more investments in real estate, unlisted shares of stock, as well as plan holder loans.
Vazquez said, “We did not ask for a bailout like what the US and other countries did to anchor their industries. We just requested for regulatory relief to tide us over. And relief solutions were already put in place by the SEC in their recent circular.” Edited by INQUIRER.net
July 4, 2005
Byline: ANA MARIE MACUJA
The Securities and Exchange Commission (SEC) is closely monitoring 12 pre-need companies that have offered traditional or open-ended education plans.
Of the 12, four have had their dealers license suspended or revoked. The four include College Assurance Plan Philippines, Inc. (CAP), Pacific Plans, Inc. (PPI), Platinum Plans, Inc. and Scholarship Plans, Phils., Inc.
The remaining eight include Eduplan Phils., Inc., Eternal Plans, Inc., Legacy Consolidated Plans, Inc., PET Plans, Inc., Prudentialife Plans, Inc., Pryce Plans, Inc., TPG Corp., and Trusteeship Plans, Inc.
To recall, PPI claimed its liquidity problem is caused by its open-ended plans. The company said the deregulation of tuition increases in 1990 placed in peril the companys obligations under the open-ended or traditional plans.
PPI earlier claimed as a result of the deregulation, its obligation under the open-ended educational plans ballooned to a level not originally projected by the company.
“The deregulation of tuition fees has caused a tremendous rise in the cost of education, which in turn put an enormous pressure on traditional (open-ended) plans and their respective trust funds considering that pre-need companies dealing in such securities could not pass on the additional cost to their planholders,” PPI claimed.
PPI stopped selling open-ended education plans in 1992, 10 years ahead of a directive from the SEC putting to a stop the sale of such type of education plans.
The SEC, on the other hand, has been criticized for allegedly not doing its job to prevent the financial turmoil of companies such as PPI and CAP.
The SEC has also received criticisms for not immediately putting to a stop the sale of open-ended plans. The SEC directed pre-need firms to stop selling this type of education plan only in 2002.
Dec. 24, 2003
Byline: ANA MARIE MACUJA
The Securities and Exchange Commission (SEC) is expecting more mergers and consolidation in the pre-need industry next year as a result of the requirement to increase capital to P100 million.
Under the New Pre-need Rules issued by the Commission, new entrants in the pre-need industry should have at least a capitalization of P100 million. Existing pre-need companies are also required to put up the same amount but some have expressed difficulties in putting of such capitalization.
In view of this, the SEC has ruled that for the meantime that these companies have not yet fully complied with the required capitalization, they will not be able to sell all three pre-need plan types. For a capitalization of only P75 million, only two plan types are allowed to be sold and for a capitalization of P50 million, a pre-need firm can only sell one type of pre-need plan.
Non-Traditional Securities and Instruments Department head Emil Aquino however said that pre-need firms which are still not in compliance with the new capitalization requirement are more encouraged to merge with other pre-need firms in order to stay in the industry and meet the capital requirement.
Aquino said this is also one of the reasons why the Commission required a higher capitalization, for mergers and consolidation in the pre-need industry to be more active.
So far, those who have already merged include Prudentialife Plans Inc., Loyola Plans Consolidated, Mercantile Plans and Legacy Plans which recently merged with Consolidated Plans.
Early on the SEC presented to the Federation of Pre-Need Plans Companies Inc. ailing pre-need firm Asian Diamond Plans Inc. for a possible merger with one of the more financially stable member of the Federation.
Some members of the Federation may be interested in taking over Asian Diamond, Aquino said.
Two interested investors earlier expressed intent to buy-out the current management of Asian Diamond but plans did not materialize. The prospective investors include Singaporean-American firm Sovereign Group and a local investor.
SEC said the two investors however failed to comply with the condition set by the SEC to cover the trust fund an capital deficiency of Asian Diamond before it could takeover the company.
According to Aquino, the Federation led by its president Jose Miguel Madrigal-Vazquez expressed willingness to look at the condition of the financially-troubled preneed firm.