SEC supports Pre-need Code

The Securities and Exchange Commission said it fully supports the Pre-need Code being proposed in Congress to further safeguard the interest of pre-need planholders.

"We welcome it because it gives regulators some flexibility," SEC Chairman Lilia R. Bautista said. She added the SEC is amenable to the proposal increasing the amount to be deposited in trust funds to 65 percent of all collections of pre-need firms from the existing 51 percent.

Pre-need firms are required to keep assets equal to their actuarial reserve liabilities (ARL) representing the present value of future planholder benefits in a separate trust fund. When trust fund assets fall below the ARL, a trust fund deficiency results.

Over the past four years, more than half of all pre-need companies experienced trust fund deficiencies which deteriorated to P5 billion in 2001.

The SEC has forced the industry to shape up and invest more capital. This year alone, by strictly enforcing its rules, the SEC made pre-need companies raise their trust funds by P7 billion to P44 billion.

The SEC is pushing for the immediate passage of the Pre-need Code to strengthen public confidence and minimize losses to planholders in the event of the insolvency of a pre-need firm.

The proposed code would provide a broad mandate to the regulator of pre-need plans to establish an investor protection scheme to answer for claims in case a pre-need firm runs into financial difficulty.

The measure also requires a paid-up capital of P100 million for pre-need companies to ensure their financial health.

The bill also requires the transfer of supervision over the pre-need industry to the Insurance Commission.

Some lawmakers argued that a pre-need plan is an insurance contract and therefore, regulation should be transferred to the IC.

The SEC is more than willing to relinquish its authority over the multi-billion peso pre-need industry to enable it to concentrate on capital market reforms.

The Federation of Pre-need Plan Companies, for its part, said Congress should be circumspect in supporting a shift in regulator to the IC, which has the practice of limiting the eanings to policyholder and turning over excess profits of the investments made to the company.

It has asked Congress to let the preneed industry remain under the SEC which for the past 38 years has provided the regulatory rules under which it operated and fluorished.

The federation said that inspite of the budgetary limitations of the SEC, it managed to provide professional supervision even to the extent of setting up a section in the Commission to oversee pre-need plan operations.