The benefits of being prudent

Following my piece on the 5Cs of choosing a pre-need company, I received numerous requests for me to rate Prudentialife Plans based on these criteria.

Let me assure Prudentialife planholders that your investments are safe. There had been rumors and text messages being disseminated to discredit the company and lump it in the same grouping as CAP and Pacific Plans but Prudentialife president says with all sincerity that these rumors are totally unfounded and that all obligations will be met.

Why do I say that investments in Prudentialife are safe. I can say that this is due to its prudent management of the money of its planholders. While the Securities and Exchange Commission (SEC) requires that only a maximum of 25 percent of the trust fund portfolio mix be placed in real estate, Prudentialife has only seven.

While the maximum investment in equities as per SEC rules is 25 percent, that of Prudentialife is only 18 percent. The bulk of the company’s equities investment is in First Asia Realty, owners of SM Megamall while more than 60 percent of its total investment is in safe government securities.

Company president Jose Alberto Alba points out that because their other investments such as that in SM Megamall are making money, they have enough assets to cover their obligations to planholders, including those holding open-ended educational plans.

The company’s philosophy is that while it may lose money in some of its businesses such as these traditional plans, it is able to compensate with its other businesses. Prudentialife’s 20 percent investment in SM Megamall is estimated to be worth a whopping P16 billion.

Another key factor in the company’s success is its professionally managed trust fund. Prudentialife’s trust fund is managed by eight highly stable trustee banks namely BPI, Banco de Oro, Metrobank, Prudential Bank, Equitable PCI Bank, ING Bank, Deutsche Bank, and Standard Chartered.

Prudentialife’s trust fund has been growing at an average of 49 percent per annum over the past five years. From P3.1 billion in 1999, it grew to P12.3 billion as of end-2004. As of end-March this year, the trust fund had reached P12.5 billion, the biggest in the pre-need industry.

In the life plans category, Prudentialife was number one in terms of contract price and market share at 25.16 percent, followed by St. Peter Life Plans with a 16.5 percent share, Lifetime Plans with 14.49 percent, Pacific Plans with 12.58 percent, Philam Plans with 11.5 percent, Loyola (6 percent), Himlayang Pilipino Plans (3.06), Eternal Plans (2.94), PET Plans (2.5), and Provident Plans (1.97).

In pension, Prudentialife ranked second with a 19.57 percent market share next only to Philam Plans which had a 27.22 percent share. Other market leaders are Manulife (7.03 percent), Comprehensive Annuity Plans (6.53), Sun Life (6.05), Pacific (5.26), Loyola Plans (4.63), Platinum (3.39), TPG (2.62) and Legacy Consolidated (2.33).

In educational plans, Philam Plans led with a 29.52 percent share, followed by Prudentialife with 19.12 percent, CAP with 12.3 percent, Berkley (11.64), Loyola (6.8), Sunlife (3.57), TPG (3.24), Pacific Plans (Pepstar) 2.88 percent, PET Plans (1.85), and Platinum Plans (1.75).

On the whole, Philam Plans had a 26.25 percent market share for the whole of 2004, followed by Prudentialife with 20.05 percent, Comprehensive Annuity (7.86), Loyola (5.57), Pacific Plans (5.24), Sunlife Financial (4.47), Berkley (4.18), Manulife (3.7), Lifetime (2.89) and Platinum (2.58).

The pre-need industry is a growing sector, no doubt about it. In 2003, it had a negative growth rate. Last year, the industry experienced a turnaround and inspite of the blackeye caused by CAP and Pacific Plans, it will definitely grow this year. But whether it will grow as fast as it should will depend on a number of factors.

One of these is the proposed pre-need bill. Everybody in the industry agrees that the SEC has good rules and regulations, but a strict implementation is lacking. Otherwise, CAP and Pacific planholders will not be experiencing any problems. If the legislators overreact, additional rules governing the pre-need industry will stifle its growth.

Which companies have not been complying with the required paid-up capitalization? Which have not been observing the rules on trust fund portfolio mix? Which companies are spending too much on commissions and other expenses? Are there additional companies whose licenses to sell should no longer be renewed? Are those under regulatory leeway complying? The ball is in the court of the SEC to give the public adequate protection.

Feedback

"I extend my warmest greetings to you and the members of Philippine Star. I also extend our deepest gratitude for the exposure given to, and interest in, Next Mobile’s unique products, services and its overall business strategy in the Philippines and its recent expansion to the United States.

Kindly allow me to clarify the following matters:

1. On the matter of corporate officers and their respective titles. Recently, I was referred to as chair and CEO of the company. I am the chairman of the executive committee and CEO. Mr. Ed David, chairman of H&Q Philippines, is the chairman of the board of directors of Next Mobile. We also acquired a new partner in the person of Mr. Lambert Ramos who now sits as president and chief operating officer. Lambert brings with him an impressive record of professional and business experience, know-how and expertise in Next Mobile and now assumes leadership in the operations of the company.

2. On the matter of PEP-Next Mobile transaction. During my short break there in Manila, I saw an old article with statement that says, "Next Mobile junked PEP for its backdoor listing." I wish to clarify that the PEP-Next Mobile memorandum expired in October 2004 and has never been renewed. Neither one of these company junked the other. When the stock market showed some form of excitement and exuberance was in the air starting early January, both parties were faced with new opportunities for each one to take and the contemplated convergence of our business interests was halted by the non-renewal of its MOA as early as October 2004. I therefore wish to clarify this matter to the media and extend my regrets and appropriate apologies for this confusion to my friends at PEP specifically Bobby Attendido, Tony Ong, Jun Diaz, Tito Serafica and the other members of the PEP board. From my interaction with these individuals in the past many years, I personally acquired enormously valuable lessons and understanding of Philippine business, which have become so useful in my job as CEO and for which I am most grateful to each one of them.

Thank you for giving space for these two clarifications." – Mel V. Velarde, executive committee chairman and CEO, Next Mobile

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