Pre-need firms' sales down 19.19% to P3.25 billion in first quarter

MANILA, Philippines - Total sales of the country’s pre-need companies continued their downward spiral, falling 19.19 percent in the first quarter of this year.

Data culled by the Securities and Exchange Commission’s Non-Traditional Securities Department show that sales dropped to P3.25 billion in the period January to March 2009 from P4.02 billion a year ago.

The number of plans sold, however, grew 16.83 percent to 62,882 from 53,825, mainly driven by the 41.07-percent jump in sales of life plans.

Total sales of life plans grew 48.15 percent to P2.03 billion from P1.37 billion as the number of units sold increased 41.07 percent to 52,173.

The two other pre-need products – pension and education plans – suffered a drop of 32.84 percent and 63.84 percent, respectively.

Sales of pension plans amounted to P1.05 billion compared with P2.18 billion a year earlier.  The number of plans sold likewise declined to 9,442 from 14,058.

Education plans suffered the biggest drop in sales from P478.97 million to P173.19 million.  A total of 1,267 plans were sold compared with 53,825 the previous year.

Initial collections, the first payment made by the planholder upon purchase of a plan depending on his or her mode of payment, reached P363.85 million, down 9.26 percent from P1.88 billion.

Amid a weakening global economy, the local pre-need industry has asked the SEC to relax its capital build-up requirements, noting that their trust funds have eroded due to the mark-to-market accounting standards.

The SEC, for its part, had given pre-need firms until Feb. 15 this year to apply for a multi-year capital and trust fund build-up.

Pre-need firms are required to submit a five-year period projected financial statement together with assumptions taken as well as a 15-year financial program addressing the old basket of plans that are commercially impracticable.

The financial health of some pre-need companies is deteriorating with the industry incurring a shortfall last year compared with a P6.8-billion surplus in 2007 which was based on an assumed yield of 12 percent on their trust funds.

Up until February last year, the trustee banks were confident of earning 12 percent for the balance of the year.

However, when the global economic crisis erupted in the second quarter of 2008, and growing worse with each passing month, the 12-percent assumption was no longer achievable.

At 12-percent assumed rate of return, the deficit of the industry as of June 30, 2008 was supposedly only P3.63 billion but since 12 percent was not attainable, the total net earnings of pre-need firms fell, resulting in the swelling of the trust fund deficit, based on six percent yield, to P46.83 billion.