3 pre-need firms fail to renew license due to fund deficiencies

To ensure the protection of the investing public, the Securities and Exchange Commission (SEC) withheld the renewal of the dealership licenses of three pre-need firms with trust fund or capital deficiencies.

These companies are Celestial Memorial Life Plan Inc., Pension and Retirement Plan Corp. (PRP), and Asian Diamond Plans Inc.

The SEC said the firms were having difficulty complying with the minimum paid-up capital requirement of P50 million for pre-need plan firms.

Nevertheless, the three companies are now looking for ways to comply with the SEC’s trust fund and paid-up capital requirements to boost their liquidity positions.

While they can not sell new plans, the three pre-need firms are required to continue meeting its obligations to existing planholders.

Under SEC rules, a pre-need plan firm must have a paid-up capital of at least P50 million to be able to sell at least one type of plan.

Pre-need firms are required to gradually build up their capital to P100 million. To be able to sell two plan types, pre-need firms must have a paid-up capital of P75 million and for three-plan types and those selling traditional education plans, a P100 million paid-up capital must be maintained.

New entrants, on the other hand, are required to have a paid-up capital of P100 million.

The minimum capital requirements are meant to ensure that the companies are able to meet their obligations to planholders.

The SEC also reported that another pre-need company, East Asia Plans Inc., did not apply for the renewal of its dealership license.

For this year, the SEC has issued dealership licenses to 43 pre-need companies compared with the 46 licenses renewed in 2002.

Out of the 46 pre-need companies licensed last year, Consolidated Plans merged with Legacy Scholarship Pension Plan Inc. with the latter as the surviving corporation under the amended corporate name Legacy Consolidated Plans Inc.

The SEC meanwhile renewed the dealership licenses of two pre-need firms that were not allowed to sell any new plans last year. These are Scholarship Plan Phils. Inc. and Primanila Plans Inc.

With the economic environment not expected to recover over the near term, the SEC is further tightening the monitoring of the financial and operational condition of pre-need companies.

The SEC intends to conduct thorough on-sight, unscheduled inspections of pre-need companies at least twice a year.

It is also looking at reviewing the sales and advertising practices of pre-need companies.

The pre-need industry has faced difficult challenges in meeting investment objectives based on the assumptions of expected returns under more favorable economic and market conditions.

Some pre-need companies had been affected by the continued slowdown in the property sector and the decline of the stockmarket. With few investment alternatives, the pre-need investment portfolio has been invested mainly in real estate, listed stocks, treasury bills and government bonds, and bank deposits.

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.

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