Pre-need firms say they invest 51% of first year premiums in trust funds

The pre-need industry has refuted allegations by government that it has not been investing the required amount in its trust funds.

Miguel Madrigal Vasquez, Philippine Federation of Pre-need Plan Companies Inc. (PFPPCI) president, said the industry practice is for pre-need companies to infuse up to 51 percent of the first-year premiums in a trust fund. Vasquez is also the president and chief executive officer of Permanent Plans Inc.

"It used to be 40 percent of plan but it was increased to 51 percent in September 2001," Vasquez said. "The required paid-up capital is P100 million of which 23 companies are in that level from just three companies a year ago."

Another three have a paid-up capital of P75 million, which means these companies can sell only two plans (example: only pension and education plans). The remaining 19 or so are at the P50 million level, which is the required paid-up capital for other industries. That means that these companies can only sell one plan.

Reports from the Department of Trade and Industry (DTI) indicate that most pre-need companies invest only five percent of their first-year premiums and another five percent the following year.

Likewise, the Securities and Exchange Commission (SEC) reported that several firms failed to meet the capital requirement.

Vasquez said that even if there was one company or several companies that were in trouble due to reports of a fund deficit, "one company does not represent an industry."

"Given a little time, the industry can show that it is healthy. All 45 companies are liquid despite the report of a liquidity problem of that one company, " Vasquez stressed.

Meanwhile, Vasquez reacted to reports that there was strong clamor from the different government agencies including the legislators that the pre-need industry should be placed under the guidance of the Insurance Commission (IC) from the SEC.

"We have no objections to the recommendation to transfer the regulatory functions from the SEC to the IC. We are happy with the SEC, which have improved substantially its regulations putting up the non-traditional department. If our legislators see it better for us to be udner the IC, then we will follow the law," the PFPPCI president said.

However, he stressed that whatever law is passed should strengthen the regulator while making room for flexibility to allow the industry to grow. "The regulator becomes inutile because it is in the law and the law must be amended. That is what must be avoided," Vasquez added.

The PFPPCI chief said earlier that the pre-need industry would exceed the annual growth of premiums by the life insurance industry.

Last year, the industry registered a sales volume of P37.1 billion while the life insurance industry is forecast to register a premium income of P31.285 billion in the same period.

The life insurance industry grew by an average 16 percent yearly while the pre-need industry grew by an average 30 percent in the past six years.

In 1985, sales reached P5 billion rising to P17.5 billion after only 10 years. It doubled to P36 billion in 2000 to P37.1 billion last year. The industry claims to have a client base of nearly nine million subscribers.

A large number of the major players in the pre-need industry are subsidiaries of life insurance players.

Among them are: the Philippine American Life and General Insurance Co. (Philamlife) and PhilamPlans; Pacific Plans Inc. and Great Pacific Life Assurance (Grepalife); Ayala Life Assurance Co. and Ayala Plans.

Not to be outdone, several major players in the life insurance industry recently joined the bandwagon. Sun Life of Canada and Manufacturers Life Insurance Co. Philippines opened last year their pre-need subsidiaries.

Last year, the SEC, the government regulatory agency watching over pre-need industry, increased not only the minimum paid up capital requirements but also the reserve requirements in the form of trust funds.

Industry players have been required to invest 51 percent of first year premiums in trust funds after government received an alarming number of complaints regarding pre-need firms failing to meet claims.

Last year, there were nearly 80 pre-need players as against 39 life insurance players. However, the pre-need industry has been reduced to less 50 due to the P100 million minimum capitalization requirements.