SEC gives pre-need firms 2-month extension to build up their capital

MANILA, Philippines - The Securities and Exchange Commission has extended for two months, or until April 15, the deadline for pre-need firms to submit their capital build-up program.

The extension was in response to the request of the Federation of Pre-need Plan Companies for additional time to comply with the capital requirement.

The additional time would also allow the pre-need firms to prepare their financial statements for 2008 and reveal their financial position.

The financial health of pre-need companies has been deteriorating, with the industry incurring a trust fund deficiency of P46.83 billion last year. This was in contrast to a P6.8-billion surplus in 2007.

According to industry data, the end-2007 surplus was based on an assumed yield of 12 percent on their trust funds. Trust funds of pre-need firms reached P74.66 billion as against liabilities of only P67.86 billion that year.

Industry sources said up until February last year, the trustee banks were confident of earning 12 percent for the balance of the year.

However, when the global economic crisis erupted in the second quarter of 2008, and growing worse with each passing month, the 12 percent assumption was no longer achievable.

Amid tough business conditions, most pre-need firms are thinking of ways to either to stay afloat or just cease operations.

Coming to the rescue, the SEC has given pre-need firms three years or from 2009-2012 to fund the deficiency between their trust fund and reserves. 

Pre-need companies are required to submit a five-year projected financial statement together with assumptions taken, as well as a 15-year financial program addressing the old basket of plans that are commercially impracticable, taking into consideration the respective maturity values of the plans.

The SEC has also relaxed the rules on investments by pre-need firms 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.