SEC reimposes moratorium on new pre-need companies

The Securities and Exchange Commission (SEC) has reimposed a moratorium on the establishment of new pre-need companies unless the new firm will take over the operations of an existing pre-need company.

Emil Aquino, head of the SEC’s Non-Traditional Securities Department, said the moratorium does not apply to companies that will acquire the shares and/or the assets and liabilities of existing pre-need companies.

Aquino said the move is intended to encourage consolidation and mergers in the industry to allow smaller pre-need firms to cope with the prevailing financial difficulties and meet the agency’s stringent requirements.

To ensure the protection of the investing public, the SEC did not renew the dealership licenses of Celestial Memorial Life Plan Inc., Asian Diamond Plans Inc., and Pension and Retirement Plan Corp. for failing to comply with the minimum P50-million paid-up capital requirement.

The three companies are now looking for ways to comply with the SEC’s trust fund and paid-up capital requirements to boost their liquidity positions.

While they can not sell new plans, the three firms are required to continue meeting obligations to existing planholders.

Under SEC rules, a pre-need plan firm must have a paid-up capital of at least P50 million to be able to sell at least one type of plan. To be able to sell two plan types, pre-need firms must have a paid-up capital of P75 million and for three-plan types as well as those selling traditional education plans, a P100-million paid-up capital must be maintained.

New entrants, on the other hand, are required to have a paid-up capital of P100 million.

The minimum capital requirements are meant to ensure that the companies are able to meet their obligations to planholders.

For this year, the SEC has issued dealership licenses to only 43 pre-need companies compared with the 46 licenses renewed in 2002.

With the economic environment not expected to recover over the near term, the SEC is further tightening the monitoring of the financial and operational conditions of pre-need companies.

The SEC intends to conduct thorough on-sight, unscheduled inspections of pre-need companies at least twice a year. It is also looking at reviewing the sales and advertising practices of pre-need companies.

The pre-need industry has faced difficult challenges in meeting investment objectives based on the assumptions of expected returns under more favorable economic and market conditions.

SEC said over the past four years, more than half of all pre-need companies experienced trust fund deficiencies which deteriorated to a combined P5 billion in 2001.