Pre-need industry prefers acquisition route

The country’s pre-need industry is expected to consolidate further as new entrants prefer the acquisition mode rather than establish new companies. Likewise, industry players are holding discussion for "mid-step" consolidation over further mergers or acquisitions.

A group of investors composed of foreign and local players are reportedly holding talks with an existing player, which has stopped selling plans although it continues to service its existing plan holders.

Industry sources refused to name the companies for fear of jeopardizing discussions. "They see practicality in acquiring existing players rather than spend huge amounts of money and effort on establishing new ones," the same source said.

Sources also refused to confirm nor deny whether the said group was the same being alluded by Securities and Exchange Commission (SEC) Chairman Lilia Bautista was also interested in investing in troubled player Comprehensive Annuity Plans and Pension Corp. (CAP Plans).

CAP Plans said that it was holding talks with interested foreign investors, which could lead to an increase in its reserve or trust funds. The SEC made it clear to CAP Plans that it was also in talks with interested buyers of pre-need companies, and that includes CAP Plans.

There are 40 active pre-need companies today selling pension, education and memorial plans in varying degrees depending on its capitalization level. However, the players in the lower half of the stratum are being "enticed or encouraged" both by the SEC and the industry players of consolidating.

Meanwhile, the Philippine Federation of Pre-need Plan Companies Inc. (PFPPCI) is looking at introducing the so-called mid-step consolidation method.

PFPPCI president Juan Miguel Vazquez said that industry players remain hesitant to admit their difficulties in maintaining a competitive pace in the pre-need industry, which has been recording negative growth levels since last year.

Vazquez explained that mid-step consolidation is more like a form of outsourcing wherein members would help each other reduce operational costs like backroom operations, or collections. Pre-need companies can share costs or swap equity or sell equity for services.

Everything remains in the discussion level as the industry sought solutions to higher capital requirements and low investment returns. Other players said that it was a more "subtle and painless form of consolidation and merger."

The federation chief stressed that the industry is healthy despite the weaknesses of some players.

The pre-need industry must be assisted and guided by a strong regulator, and that the strong regulator must be mandated by law. – Ted Torres