Pre-need firms buck proposed new rules on actuarial reserves

The new rules on actuarial reserves and termination values embodied in proposed amendments to the existing rules and regulations will threaten the very existence of the 35-year-old pre-need industry.

This was the gist of a position paper submitted by the Philippine Federation of Pre-need Plan Companies Inc. (PFPPCI) to the non-traditional securities and instruments department of the Securities and Exchange Commission (SEC), the government agency mandated to regulate and pre-need industry.

There are over 80 pre-need companies nationwide offering such products as memorial, education and pension plans.

The PFPPCI said the proposed changes would have "far-reaching effects on the validity of the industry." It urged government to "listen and look at our counter-proposals."

Talk on the proposed amendments have been going on for almost a year now. The talks have in fact resulted in many of the proposals being incorporated in the amendments. However, some of the proposals were never discussed, the PFPPCI said.

Among others, the SEC is proposing to change the formula for the computation of actuarial reserves of pre-need companies. The reserves are required by the SEC to ensure that the companies are capable of meeting claims or "maturities."

Included in the reserves are the trust fund contributions, which are handled by a trust party which are mainly banks or investment institutions.

The new rules require pre-need companies to increase to 51 percent from 44 percent their trust fund contributions, which the industry association said could result in huge fund deficiencies.

The PFPPCI said any changes at this point could be counter-productive.

The group is proposing a status quo until the industry, the SEC and the Actuarial Society of the Philippines have done an extensive review of the proposals.

Coupled with changes in the actuarial reserves and termination values is the increase in capitalization to a minimum P100 million effective October this year. Industry sources said nearly half the industry will be adversely affected. They agreed that it could result in fewer but better services as the surviving pre-need companies would be in a healthy financial position.

They said additional burdens like the proposed changes in actuarial reserves and the terminal valuation process could put the surviving companies in a precarious state.

Of the 80 or so existing pre-need companies, the top five pre-need companies account for nearly 80 percent of the plans in force. Nearly 25 percent of the companies are currently capitalized over the proposed P100-million capitalization.