SEC upholds creation of body to oversee operations of CAP

The Securities and Exchange Commission (SEC) has uphold its order creating an oversight committee to oversee the operations of leading pre-need firm College Assurance Plan Philippines Inc. (CAP), despite the latter’s objections.

The SEC explained that the oversight committee is necessary to monitor CAP’s operations and map out ways to address the firm’s trust fund deficiency.

The three-man oversight committee is headed by former SEC associate commissioner Danilo Concepcion with two other SEC representatives, Noni Ambat and Carlo Taparan, – both from the Non-Traditional Securities Department – as members.

But CAP had questioned the committee’s composition, noting that its members have no business expertise, eventually filing a motion for reconsideration seeking the nullification of the committee.

CAP had P8.49 billion in trust funds managed by its trustee banks compared with its actual reserve liability (ARL) of P25.6 billion.

The ARL is computed on the basis of assumptions on interest rates, inflation rates and percentage of lapsed plans or contracts cancelled due to incomplete payment.

CAP deferred the recognition of its higher ARL level for 2003 after asking the SEC for leeway to amortize its trust fund shortfall. The leeway is also intended primarily to provide a reasonable transition for pre-need companies to address the expectedly high trust fund variance as a result of the SEC rule to use realistic and attainable interest rate assumptions in the valuation of liabilities.

Out of CAP’s P8.49-billion trust fund assets, P3.12 billion are invested in the Metro Rail Transit bonds, P2.67 billion in real estate properties, P2.26 billion in shares of stock of listed companies and subsidiaries, P83.83 million in Treasury bills, P134.92 million in advances to Nasugbu Properties and P143.06 million in loans to other firms.

The MRT bonds, which have a future value of approximately $195 million, were acquired in 2002 from Fil-Estate Management Inc. These are zero-coupon notes issued by MRT III Funding Corp. with an aggregate present value of $50.7 million and will mature between 2013 and 2015.

It has asked the SEC to allow a higher valuation for its investment in the MRT bonds which have a book value of P3.12 billion. The bonds, according to CAP, should be valued at P7.1 billion as per initial valuation made by PentaCapital Investment Corp.

CAP’s total assets, consisting of cash, investment in trust funds and shares of stock, among others, amounted to P18.5 billion as of end-2003.

A trust fund refers to the money set aside by a pre-need company to answer for future claims of its planholders. It is considered insufficient when it is less than the projected liability or the estimated total amount of payment for tuition fees or burial costs the pre-need company must pay in the future.

CAP’s trust fund assets are managed by the Bank of Commerce, Allied Banking Corp., Bank of the Philippine Islands, Union Bank of the Philippines, Metropolitan Bank & Trust Co., Equitable-PCIBank and Philippine Veterans Bank.

According to the SEC, CAP could also sell its real estate properties in Nasugbu, Batangas which are included in its trust fund.

CAP, for its part, is confident it can cover all obligations to planholders, saying the the gap between its trust fund and its ARL is only temporary.

The pre-need firm is currently negotiating with a group of foreign investors for a possible $100-million equity infusion or loan that will boost its trust fund.

Aside from this, CAP is also looking at other real estate assets that could be included in the computation of its trust fund. Among these properties are in Canyon Woods, Tagaytay; Forest Estates; the Nasugbu Harbor Town and investments in Naic Properties.

CAP is also banking on its investment in Manila Southwoods Ecocentrum and sales in Nasugbu Harbor Town.

Another source of funds is the P1-billion bonds subscribed by CAP from Systems Technology Institute. These bonds are non-interest bearing certificates that give holders academic entitlements to any of STI Colleges or its affiliated educational entities upon redemption on certain designated redemption dates, which range from between four and 19 years from issue date.