CAP acts to shore up liquidity position

Demonstrating a firm resolve to strengthen its liquidity position, pre-need industry leader College Assurance Plan (CAP) has deposited P100 million in fresh capital and P36.9 million worth of real estate properties to its trust fund.

The infusion of additional capital and assets in the trust fund is part of CAP’s efforts to cover its trust fund deficiency of P2.596 billion and reassure its planholders that it can meet all maturing obligations.

Emil Aquino, head of the SEC’s Non-Traditional Securities Department, said CAP shareholders need not worry anymore as the pre-need company has been trying its best to settle its trust fund deficiency.

"CAP has been looking for means and ways to cover the deficiency in its trust fund. As a matter of fact, it has already infused an additional P137 million worth of cash and real estate assets to boost its trust fund," Aquino said.

Aquino said the remaining deficiency, which now stands at P2.459 billion, would be funded through the infusion of various forms of assets backed up by bank letters of credit and the issuance of securities/debt instruments issued by reputable financial institutions.

CAP has 60 days within which to submit relevant documents to substantiate the required infusion of assets to cover its trust fund deficiency.

A trust fund serves as a buffer fund to ensure that all obligations due to planholders will be met in case a pre-need plan firm runs into financial difficulty.

CAP claimed that the P2.5 billion deficiency incurred last year was caused by the Asian financial crisis which erupted in July 1997 and the consequent high cost of education in the country.

The company has paid more than P6.5 billion in tuition covering almost a hundred thousand students, of whom some 40,000 had finished college.

CAP president and chief executive officer Enrique Sobrepeña said a "trust fund shortfall" was not necessarily a "cash deficiency" but an "asset trust fund present value deficiency" based on certain assumptions to settle the company’s maturing obligations years from the date of the actuarial valuation report.

The actuarial valuation report determines the sufficiency of the trust fund vis-à-vis the reserve requirement or the benefit obligation of the company to the planholder when the plan matures or at the time of need as provided in the plan.

In case of a trust fund deficiency, pre-need firms are required by the SEC to submit a trust fund enhancement program or a funding scheme to be studied and approved by the Commission.

Amid problems besetting the pre-need industry, the Department of Trade and Industry has called on government regulators and the pre-need firms to work together for the immediate establishment of an investor protection fund.

Trade and Industry Secretary Manuel Roxas II said the pre-need planholders’ protection fund will function like the Philippine Deposit Insurance Corp. where bank depositors can go to when their banks run into trouble.

Roxas said that unlike bank depositors, pre-need investors have no one to turn to when their pre-need plan firms collapse.

SEC data showed that a total of 92,000 planholders with pre-need plans worth P2.7 billion were left holding an empty bag with the closure of 13 pre-need companies either through voluntary dissolution or revocation of franchise.