New foreign group eyes local pre-need industry

Amid problems plaguing the pre-need industry, a Singaporean-American group has signified interest in entering the Philippine pre-need market to take advantage of the growing awareness by the public of the financial benefits of the product.

Emil Aquino, head of the Securities and Exchange Commission’s Non-traditional Securities Department, said the Singaporean-American group will buy out cash-strapped pre-need firm Asian Diamond Plans Inc. of businessman Damaso Magbual.

Aquino said the foreign group will raise the existing P50-million paid-up capital of Asian Diamond to P100 million to enable it to sell three types of plans. Asian Diamond Plans has until Aug. 15 to cover up its trust fund deficiency of P13 million, which will be infused by the foreign group.

The entry of the Singaporean-American group will bring to six the number of multinational firms in the pre-need industry. Among the multinational firms that have already made their presence felt in the country are Philam, Berkley, CMG, Sunlife and Manulife.

Under the SEC’s new rules, new entrants are required to have a minimum paid-up capital of P100 million. For those who cannot meet the capital requirements, the SEC has limited the types of plan they can sell. For one-plan type, the minimum capital is P50 million, for two plan types, P75 million, and for three pre-need plan types, and those selling education plans, P100 million.

Before the passage of the new rules, only eight out of the 45 licensed pre-need companies for 2002 were considered compliant. To date, only 19 pre-need firms have complied with the P100 million paid-up capital.

Given a weak economic environment, pre-need plan firms experiencing tight liquidity problems are being urged to merge with bigger pre-need plan companies to cope with the prevailing financial difficulties and meet the agency’s stringent requirements.

Small pre-need plan firms are finding ways to comply with the minimum paid-up capital requirement as they have sounded out other pre-need plan firms to absorb their business to remain competitive.

Aquino said Legacy Plans has already completed its purchase of Consolidated Plans Inc. and that its long-term plan is to consolidate their operations to cut costs to be able to serve the growing needs of the public.

He said Eternal Plans of the Cabangon-Chua family is in talks with Pension & Retirement Plans for the possible acquisition of the latter to further strengthen its position in the pre-need industry.

Aquino said two more groups are scouting for possible targets, which could lead to the consolidation of the pre-need industry.

The pre-need industry managed to sustain its growth in sales in 2001. The number and amount of pre-need plans sold in 200l increased to 640,700 plans valued at P37.2 billion, up by 10 percent and three percent, respectively, compared to 2000 levels.

Giving more teeth to its regulatory powers, the SEC has tightened its disclosure rules for pre-need companies to ensure the protection of investors and a fair and transparent market.

Under the proposed amended rules, no pre-need plans registered with the SEC shall be sold unless an information brochure has been filed by a pre-need plan firm, indicating the name and address of the trustee who will manage the trust fund and the agent, if any.

Salesmen of the pre-need company or the agent are required to issue a statement that they have been authorized to sell pre-need plans and licensed by the SEC. The statement should indicate that the planholder can check these data with the office of the pre-need company.

A pre-need company is also mandated to issue a statement that it is required to contribute a certain percentage of payments received to a trust fund to be administered by a trustee.

Any default in payment which continues for more than two years from date of lapse of the grace period of 60 days will result in cancellation of the plan contract and the forfeiture of any claims of the planholder.

The SEC said it may suspend the permit to sell pre-need plans when there is a material change in the information contained in the information brochure.

Before a pre-need company makes an offering of its plans, it must publish at least once in a newspaper of general circulation the registration status of the firm, description of the types of pre-need plans offered, terms and conditions of payment of termination values, principal personnel composing its technical staff and operational staff, total cash assets, operation and management contract .

Pre-need companies found to have made false or inaccurate statements will be held criminally liable by the SEC.