Only 2 of 24 pre-need firms submit capital build-up plans

MANILA, Philippines - Only two out of the 24 pre-need firms with an existing dealer’s license submitted their capital build-up plans to the Securities and Exchange Commission, fanning speculations that the rest are likely to wind down operations due to a prolonged global financial downturn.

An SEC official who requested not to be named said Prudentialife Plans Inc. and Coco Plans Inc. were the only two companies that filed their respective capital build-up programs as the deadline set by the SEC expired last week.

Pre-need firms were given until April 15, 2009 to submit their individual business plan to the SEC.

The SEC official said this signals a further shakeup in the industry with majority of the firms likely to fold up.

The same official said those that failed to submit their individual business plan could have probably surmised that they would not be able to inject additional capital given an increasingly difficult business climate.

An industry source said the rate of termination of pre-need plans has shot up in recent months due to the challenges presented by the global economic crisis. This has contributed to the woes of the multi-billion peso industry.

The same source said more than half of the total pre-need firms have opted to close shop and just service existing clients.

Among the other pre-need firms with dealership licenses for 2009 are AMA Plans Inc., Ayala Plans Inc., Caritas Financial Plans Inc., CityPlans Inc., Danvil Plans Inc. (formerly Berkeley International Plans Inc.), Destiny Financial Plans Inc., Eternal Plans Inc.,First Country Plans Inc., First Union Plans Inc., Grayline Plans Inc., Himlayang Pilipino Plans Inc., Loyola Plans Consolidated Inc., Manulife Financial Plans Inc., Mercantile Careplans Inc., Paz Memorial Service Inc., Permanent Plans Inc., Philam Plans Inc., Provident Plans International Corp., St. Peter Life Plan Inc., Sun Life Financial Plans Inc., Transnational Plans Inc. and Trusteeship Plans Inc.

Documents show that as of Dec. 31, 2008, the industry had a trust fund of P76.23 billion as against reserves of P75.46 billion, resulting in a surplus of P772 million based on an assumed yield of 11 to 12 percent.

An industry source said the 11-12 percent assumption was still realistic when these pre-need companies filed their financial reports in April 2008, pointing out that trustee banks even supported it.

Observers said conservative estimates would show that the industry’s trust fund deficiency could have gone up to P70 billion as of end-December last year if the projected yields were set at a more realistic level like six percent.

The rule of thumb is for every one percent lower yield, liability goes up by 10 percent.

Pre-need firms are experiencing liquidity problems due to stock market losses.

Majority of the industry’s trust fund are invested in the country, at least P63 billion are in government securities and in blue-chip stocks.

The Philippine Federation of Pre-need Plan Companies said the root cause of the industry’s problem is the huge basket of old plans which were priced per actuarial feasibility studies that were then visible.

These plans assumed interest yields of up to 16 percent per annum when key interest rates and T-bill rates were 20 percent per annum. Under these past assumptions, tremendous volumes of business were underwritten under these past assumptions.