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Pre-need companies seek more lax trust fund rules


MANILA, Philippines- The Philippine Federation of Pre-Need Plan Companies Inc. (PFPPCI), is seeking more leeway from the Securities and Exchange Commission in light of what they called “difficult situation" owing to the global economic slowdown. The proposals, however, were described as “alarming" by planholders. In a position paper submitted to the SEC, PFPPCI has laid down a number of short and long-term solutions to lend relief from “huge unrealized erosions" in the trust funds of their plans. The short-term solutions that the group proposed were: relief from mark-to-market losses, a five-year provision in funding trust fund variance, allowing a pre-need company to fund the variance with non-cash assets such as real estate and unlisted shares of companies that have positive track record, and a five-year leeway in funding shareholder's equity in case losses will erode capital base. As an example, the group said that if a pre-need company has a P200-million trust fund variance, the difference between the trust fund and the actuarial reserve liability (ARL), of which P100 million were from unrealized losses, the trust fund variance should be recomputed as P200 million less P100 million. For a pre-need company to be considered healthy, it must have a ratio 1:1 trust fund to ARL. PPFPCI claimed that the unrealized loss in the future “will generate positive returns" as the market corrects over time. Even if pre-need companies will be given a relief from mark-to-market losses, a number of them will still register trust fund variances. The group said to cover the trust fund variance, they should be given a period of five years to do so. Likewise, they should be allowed to fund the variance witn “non-cash assets" such as real estate and unlisted shares of companies that have positive track record. “Should there be negative earnings as a result of unrealized losses, we request that we be allowed to build up capital over a five-year period," PPFPCI added. Meanwhile, the long-term proposals were: to ring fence the old basket of plans that are commercially impracticable, for individual companies to submit their own pre-need financial program to address the ring fenced plans, to allow the company to continue selling while addressing ring-fenced plans and to review the valuation standard for the trust fund assets. The group said they must be allowed to determine the block of plans that were priced based on returns that are no longer attainable and to manage these plans differently from the commercially viable plans. Following the identification of plans to be ring fenced, individual companies will submit their own pre-need financial program to address these plans. They also asked the SEC to allow them to continue selling while addressing ring-fenced plans, claiming that margins earned from selling new plans could help address the problem of their older plans. “By allowing the company to continue selling its present products that are now formulated and priced assuming all-weather hurdle rates, the required overall yield of the entire basket of plans will effectively average down to a more realistic rate as the old plans thin out and the new products prevail," the group added. PPFPCI said that the regulator must look for an alternative valuation standards for their trust fund assets as the current standard has “created too much volatility". As a way to further convince SEC, the group cited that in Taiwan, companies were allowed to continue to operate even if they did not cover variances immediately. They claimed that these variances were covered over time from future earnings from more profitable plans. “We would support the old practice of no deficit if it were possible. Unfortunately, the commercially impracticable plans make it difficult," PPFPCI said. “Notably, while the company is made liable, the trust fund is not within the control of the pre-need company. To require us to put more funds to cover potential variance just so we can continue to operate and sell plans when the authority to invest rests with the Trustee bank is not a fair situation conducive to attracting capital," the group added. Of the 14 members of the PPFPCI, only the representative from Philamlife Plans Inc. did not sign the position paper submitted to the SEC. Those who signed were representatives from Permanent Plans, Pacific Plans, Trusteeship Plans, Himlayang Pilipino Plans, Paz Memorial Services, Cocoplans, Prudentialife Plans, Sun Life Financial, Loyola Plans Consolidated, Eternal Plans, Ideal Pension Plans, and Ayala Plans. A planholder interviewed by GMANews.TV, however, said the changes being asked for the preneed companies seemed “alarming". The government employee, who refused to be named, said she holds several life and pension plans. “I think the SEC must first hold an intensive and wide consultation to ensure that the investing public will be protected from any changes that the pre-need companies want," she added. CMA, GMANews.TV
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