SEC set to ease rules covering pre-need companies

MANILA, Philippines - The Securities and Exchange Commission (SEC) is set to ease rules governing the pre-need industry, giving companies more time to restore their trust funds, which are used to cover client claims. The SEC has issued a letter setting requirements and conditions for the application of multi-year capital and trust fund build-up, an official said. The letter includes terms and conditions pre-need companies must observe once the applications are approved, Jose P. Aquino, the agency’s director for nontraditional securities and investments, said in a phone interview. Aquino said the pre-need companies have until Feb. 15 to apply for a multi-year capital and trust fund buildup. Under the new rules, pre-need companies are required to submit letters acknowledging their respective trust fund deficiency or capital impairment based on the actuarial validation, valuation report, or audited financial statements for 2007. The same rules may require companies to shorten the period to build up their trust funds, especially if their financial conditions improve during the program’s implementation. Applicants are required to submit a five-year period projected financial statement, together with assumptions taken, as well as a 15-year financial program addressing the old basket of plans that are commercially impractical, taking maturity values of plans into consideration. Firms with approved applications must immediately address their trust fund deficiencies and capital impairment within 60 days. The firms must also fund the deficiency between the trust fund and pre-need reserves within 2009 and 2012. The SEC is also giving pre-need firms temporary relief during the buildup period 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. Pre-need firms whose capital has been impaired must address these from 2009 to 2011. During this period, firms cannot declare any form of dividends, stock options, or warrants nor any form of profit sharing, performance bonuses, and other compensation schemes to its officers. Next: Relaxed rules 'alarming' for planholders Relaxed rules 'alarming' for planholders The Philippine Federation of Pre-Need Plan Companies Inc. (PFPPCI) has sought more leeway from the regulator in light of what they called a “difficult situation" 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 • 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. 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 plan holder interviewed by GMANews.TV, however, said the changes being asked for the preneed companies seemed “alarming." The plan holder, a 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. - GMANews.TV