Pre-need firms seek leeway in complying with acctg standards

The Philippine Federation of Pre-Need Plan Companies Inc. (PFPPC) has asked the Securities and Exchange Commission (SEC) for leeway in complying with the new accounting standards to ensure the survival of the industry.

In a letter to the SEC, the PFPPC said: "While we are not contesting the new accounting standards, we believe that a good transition is necessary since the impact of the changes could result to huge losses and impairment of capital for pre-need companies."

The group pointed out that a lot of pre-need companies suffered huge losses last year brought about by the implementation of the new accounting standards and SEC circulars on the valuation of actuarial reserve liabilities (ARL).

"We believe that while the accounting and actuarial standards are clear, considering the very difficult global economy and the type of changes being imposed on us, "regulatory leeway" is appropriate during the transition as we move towards these standards," the PFPPC said.

The PFPPC noted that such "regulatory and even legislative leeway" is being exercised in other countries.

The group said the stricter rules set by the SEC last year had increased the ARL of pre-need companies.

It instead proposed that the SEC maintain the interest rate assumption of 12 percent per annum for the next three years. Under the present rules, the interest rate assumption shall be based on 80 percent of the interest rate of the longest-term government security available.

"If we are given three more years to assume a maximum of 12 percent, we have time to re-allocate our investments so that higher and reliable yields are met without having to experience wild swings in ARL and our financial statements," the PFPPC said.

The federation also asked that it be allowed to defer the booking of ARL variances as current costs for a period of five years to provide the industry with infrastructure support that ultimately enhances the financial stability of legitimate pre-need companies.

The deferment will also buy time for the industry to consolidate and make itself once more attractive to both foreign and local investors, the PFPPC.

The group likewise asked that pre-need firms be allowed the flexibility to amortize the deferred commissions of previous plans sold over a period of 10 years instead of five years. "This way, the pre-need company may defer the amortization of this expense if the other expenses particularly the increase in ARL will already erode the current years income," it said.

Moreover, the PFPPC suggested that the insurance premium reserve, which could be a significant amount for the older pre-need companies, be funded over a five-year period.

"We believe that it is appropriate to allow the companies to absorb these expenses over a longer period so as not to impair its financial standing," it added.