1/3 of pre-need firms seen to wind down operations

MANILA, Philippines - Around a third of the pre-need companies operating in the country are forecast to wind down operations and just focus on servicing existing clients rather than continue to compete for a shrinking base of customers, an industry source said.

The source, who requested not be named, said a handful of companies have already decided to push the exit button in light of the increasing rate of termination of pre-need plans. He refused to name these companies but said one of them had already informed its planholders about its decision.

“Some companies have stopped selling plans and will focus on taking care of their planholders. The logic behind this decision is because there is a small market for our products and it is better to take care of existing clients than look for new ones at the moment,” the source said.

The source said the rate of termination of pre-need plans has dramatically picked up in previous weeks, mainly due to the uncertainty over where the industry is headed in the months to come given a prolonged global economic downturn.

He predicted that 30 percent of the 24 operating pre-need firms will stop doing business and just continue servicing all plans. “My guess is initially 30 percent may not continue and this could go up to 60 percent after the assessment. But this is just a gut feel.”

To date, majority of pre-need firms expressed willingness to inject more capital into their trust fund after the Securities and Exchange Commission granted the industry a longer time (three to four years) to build up their capitalization and trust fund.

Another source, however, said pre-need firms which have yet to make up their mind whether to continue operating or not, are likely to come up with their decision next month.

“It is difficult to put more capital to shore up a fund that one does not control and can continue to lose more money. Furthermore, a lot of companies feel they are already putting up hard earned capital to care for their planholders and yet people still see us as bad,” the other source said.

The global financial turmoil has resulted in massive job losses corporate losses, and tumbling stock markets.

Liquidity is a major problem for many pre-need firms with their investments in the stock market, languishing in the red as investors fled for safer havens.

Majority of the industry’s trust fund are invested in the country. At least P63 billion are in government securities and in stocks of big corporations like Ayala Corp., ABS-CBN Broadcasting Corp., Globe Telecom, PLDT, Metrobank, Bank of the Philippine Islands, SM Prime, Jollibee and GMA Network.

To make sure they recover some, if not all, of their investments, planholders have terminated their plans. As a rule, when a plan is being terminated, planholders who have paid in full will likely get at least what they paid plus interest.

“It is very likely that some will get paid in cash and kind given pre-need firms’ liquidity problem. The offer, however, will differ from company to company, depending on each one’s situation,” the source said.

The Federation of Philippine Pre-need Plan Companies earlier said that while it is doing its best to stay afloat in the highly-competitive multi-billion peso industry, there is no assurance that the industry will be insulated from the worldwide financial crunch.

The group, however, has committed that pre-need companies which would later on decide to cease operations would be transparent about their decisions and immediately inform their respective planholders.

The 24 pre-need companies with dealiership licenses for 2009 are AMA Plans Inc., Ayala Plans Inc., Caritas Financial Plans Inc., CityPlans Inc., Cocoplans Inc., Danvil Plans Inc. (formerly Berkeley International Plans Inc.), Destiny Financial Plans Inc., Eternal Plans Inc., First Country Plans Inc., First Union Plans Inc., Grayline Plans Inc., Himlayang Pilipino Plans Inc., Loyola Plans Consolidated Inc., Manulife Financial Plans Inc., Mercantile Careplans Inc., Paz Memorial Service Inc., Permanent Plans Inc., Philam Plans Inc., Provident Plans International Corp., Prudentialife Plans Inc., St. Peter Life Plan Inc., Sun Life Financial Plans Inc., Transnational Plans Inc. and Trusteeship Plans Inc.

The pre-need industry had sought regulatory relief from the Securities and Exchange Commission since August, citing their inability to infuse more capital amid a worsening business environment.