Pre-need trust fund up 9.2% to P76.2B

Despite the financial problems facing several pre-need firms, the industry managed to boost its trust fund by 9.2 percent to P76.2 billion in the first nine months of last year from P69.8 billion in the whole of 2004.

Based on data culled from the Securities and Exchange Commission (SEC), the accumulated trust fund income of the country’s 47 pre-need companies amounted to P3.88 billion or almost three times the P1.31-billion level in 2004.

Out of the 47 pre-need firms, only 33, however, possess a dealer’s license, with the rest merely servicing their existing planholders.

A trust fund refers to the fund set up from the planholders’ payments separate and distinct from the paid-up capital of the company. It is established with a trustee bank under a trust agreement approved by the sec. It cannot be used by a pre-need firm for any other purpose except for servicing planholders.

Miguel Vazquez, president of the Federation of Philippine Pre-need Plan Companies Inc., said the growth in the trust fund indicates the industry’s resilience in troubled times and assures planholders that their investments will be returned as they fall due.

Ayala Life Assurance Inc. president Emilio S. De Quiros Jr. said this positive development should assure investors that the industry remains strong despite the financial problems some pre-need firms are facing. "Just because a handful of pre-need companies have liquidity problems doesn’t mean that the other firms are experiencing the same. There are in fact several companies that are doing well.

Dominador Reyes, vice-president for marketing/administration at Paz Memorial Plans, said investors are now more discriminate or careful prior to purchasing pre-need plans in view of the controversies plaguing the industry.

Pre-need plans are contracts which provide for the performance of future services or the payment of future monetary considerations at the time of actual need for which planholders pay in cash or installment at stated prices, with or without interest or insurance coverage and includes life, pension, education, and interment.

For this year, the pre-need firms expect to post flat growth as the industry continues to suffer from low investor confidence. The adoption of the International Accounting Standards (IAS) in the preparation of financial statements for the year 2005 is also expected to temper the industry’s performance this year.

Under the SEC proposal, the IAS will increase the liabilities of companies since premiums collected will no longer be booked as income but as a liability. This could make healthy companies with good cash positions look bankrupt.

The industry reported a 44.3-percent drop in sales last year to P20.55 billion as investors decided to adopt a wait-and-see stance prior to positioning in the market due to the cashflow problems hounding major players.