Pre-need firms urge SEC to ease its rules

To prevent an early demise of the multibillion-peso pre-need industry, the Federation of Philippine Pre-Need Plan Companies Inc. (FPPCCI) has asked the Securities and Exchange Commission (SEC) to ease some rules to allow the pre-need firms to operate under a more comfortable environment.

In a letter to the SEC, the FPPCCI said it needs the commission’s support to ride out the difficulties currently besetting some of its members. "Given the issues that we are currently facing, we believe the whole pre-need industry may collapse if not supported by our regulator," the FPPCCI said.

The group has asked that the proposal made by SEC commissioner Jesus Martinez with respect to the computation of the actuarial reserve liability (ARL) be adopted to ensure a more realistic figure.

Martinez had proposed an ARL formula equivalent to 100 percent of the fully-paid plans plus termination value for active accounts plus a 10 percent buffer.

The FPPCCI said the existing computation for the ARL has "caused so much havoc and damage to the industry."

It also asked the SEC to allow its members to deposit the shortfall in interest income if the firm fails to yield the required hurdle rate.

By funding the shortfall, a pre-need firm will be allowed to use the hurdle rate in computing for its ARL, the FPPCI said.

The group also asked the SEC to allow the amortization of the increase in ARL over a five-year period. "Because the ARL is an estimate based on assumptions, it would be best to allow the expense to be amortized instead of taking a one-time hit. This will allow for some adjustment in subsequent years if the ARL assumptions are proven wrong," it said.

Aside from this, the FPPCCI asked the SEC to give trustee banks more leeway in the investment of the trust fund, saying the current rules and regulations are too restrictive and limit the yields of the trust fund.

"If the trustee banks will be given more leeway, like mutual funds and insurance companies, which are allowed to invest in offshore investments, the fund could be diversified to include some offshore investments.

Risks would be better managed while yields could be enhanced with a more diversified portfolio," the FPPCCI said.

"Walk with the pre-need companies while we work out the hurdle rates of our products on the presumption of a going concern operation.

Allow us to move on and make continuing business plans given the current industry concerns," the FPPCCI said.

The pre-need industry provides employment to over 250,000 sales associates and employees who rely on the industry for their livelihood. It helps government in payment of taxes worth over P1.5 billion annually.