The pre-need company’s trust fund topped P321.8 million in end 2003. Of this amount, liquid assets totaled P194.5 million, enough to cover maturities in the next five years, estimated at P186.4 million.
The trust fund is the pool where a pre-need company puts a huge chunk of the installment payments of its plan holders. This is managed by the pre-need firm’s trustee bank, which invests the amount in certain financial instruments such as government securities, in real estate, or in the equities market.
The Metropolitan Bank and Trust Co., United Coconut Planters Bank, and ING Bank are Permanent Plans trustee banks.
Permanent Plans president and chief executive officer Juan Miguel Vazquez claims that the company is liquid and its funds are well managed.
"In our balance sheet, we match the trust fund and the actuarial reserve liability. The plans that we sell have different terms and their overall net present value is determined based on all future collections.
Assuming you will liquidate it all today, it should match. If the actuarial reserve is bigger, then you have a surplus. If the actuarial reserve fund is less, then you have a deficit. The SEC requires you to cover it immediately," Vazquez explained.
Permanent’s actuarial reserve obligation stood only at P276.5 million at the end of last year compared to its P321.8-million trust fund.
Vazquez noted that the Securities and Exchange Commission (SEC) acknowledges the volatility of the actuarial reserve requirement these days because it requires pre-need firms to match a physical asset with a projection.
"The actuarial reserve liability is only a projection. When you put on value, you assume a yield. If you lower the yield, the amount will go up. If you raise the yield assumption, the amount will go down," he said.
The regulatory agency already controls the yield so pre-need companies can no longer assume high yields.
"They are controlling it, which is good as it makes pre-need companies more stable."
Between 65 to 70 percent of Permanent’s trust fund is invested in government securities. Under its program to comply with the so-called asset allocation requirements of SEC, only about 31 percent is invested in real estate, down from 51 percent before the new investment limits were set. By 2005, real estate investments should be well below the 25 percent cap.
Under new SEC rules, pre-need firms cannot invest more than 25 percent of their trust funds in real estate or in the stock market. A substantial amount should be put in government securities. In addition, at least 10 percent should be liquid investments.
"The rationale is to cut the risk," the chief executive pointed out.
As of Dec. 31, 2003, Permanent Plans had 38,500 plan holders and 14 branches nationwide. – Ted Torres