National Life seeks effective support for rehab plan

MANILA, Philippines - The National Life Insurance Co. (NLIC), a 79-year old Filipino business which since 2006 has been under a series of conservators appointed by the Insurance Commission (IC), was recently granted until Jan. 31, 2013 in which to pursue its alternative rehabilitation plan.

The company is appealing for 90 working days in which to continue pursuing its plan after the appointment of a new conservator, one who will more effectively support its rehabilitation efforts. The request for the designation of a new conservator is prompted, first and foremost, by the incumbent’s openly stated position to employees and policy holders since April, 2012 that NLIC should be liquidated, whereas his responsibility as conservator is in fact to “restore the viability of the company,” as the Insurance Code states. He has refused consistently to participate in planning and implementing rehabilitation efforts for NLIC, contrary to his functions under the law.

NLIC requires a new conservator with appropriate professional experience, highlighted by a solid track record and competence, and people skills to be able to interface effectively with management, employees and policy holders in overseeing and implementing a viable rehabilitation plan. For emphasis, the responsibility of a conservator is to exert maximum effort to restore the health of the business, rather than focusing on possible liquidation proceedings to the detriment of its policy holders.

On the NLIC request for a 90-day extension to its rehabilitation efforts, the IC demanded an infusion within five days of P100 million under the old rehabilitation plan; however, it is no longer the currently approved plan. Therefore, NLIC is hard put understanding the demand.

The situation of NLIC cannot be understood without the following background:

In 1988, NLIC launched a life insurance plan with the approval of the IC that offered policyholders a protection and investment package at reasonable cost. The plan included a Premium Deposit Fund (PDF) earning a guaranteed interest reaching a high of 18 percent per annum, which could be withdrawn at anytime. However, as business and economic conditions developed, NLIC encountered difficulties, particularly in servicing the PDF. NLIC’s margin of solvency (MOS) dipped starting in 2002, and in 2006 it was placed under conservatorship by the IC.

• Therefore, since 2006, the IC effectively has been overseeing the management of NLIC through several conservators which it appointed;

• In December, 2006, the IC issued Circular No. 41-2006 which effectively required NLIC to refund within 24 months the PDF deposits to the policyholders in excess of total future premiums. The circular further ordered that 40 percent of refunds be completed by end of 2007, with the balance to be paid in 2008, and a fine to be imposed for non-compliance. The result was a “PDF run” for NLIC as the IC-appointed conservator implemented the refund and policyholders made massive withdrawals. In order to comply with the circular, NLIC was forced to sell substantial real estate assets and stocks at a loss;

• A year later, the IC issued Circular No. 23-2007 revoking Circular 41-2006. But by then NLIC had disbursed the unprecedented amount of almost PHP 800 million for PDF withdrawals. The “PDF run” continued, exacerbated by the global economic crisis of mid-2007 to early-2009, resulting in withdrawals totaling almost Php 1.4 billion during 2007-2008 alone. In order to meet its obligations, the conservator continued to sell NLIC real estate assets and stocks at a loss;

• On Sept. 15, 2008, the then incumbent NLIC conservator resigned, but left instructions to the chief financial officer to continue liquidating the assets of the company and refunding PDFs, despite the issuance of IC Circular 23-2007;

• The reverses of NLIC, from business decisions and conditions which eventually turned out to be adverse, have been severely exacerbated by various instances of regulatory intervention, some of which have been detailed above;

• Over the past years, independent audits with financial statements have found no fraud or malfeasance in the conduct of the company’s business. Moreover, the major disbursements of NLIC have been made to policyholders and creditors;

• In 2011, a rehabilitation plan was submitted to the IC by the previous conservator which was approved in principle by the IC Commissioner. This rehabilitation plan mandated a capital infusion of Php 104 million in December, 2011 which the company complied with under certain conditions. One was the IC’s immediate reissuance the Certificate of Authority (CA) to operate as a life insurance company; however this was only received in February, 2012.

In May, 2012, the IC met with NLIC and declared the then current rehabilitation plan invalid after a re-examination of the plan and given increased liability. NLIC agreed to submit an alternative rehabilitation plan by the end of July, 2012. In compliance with the agreement, NLIC presented and submitted a new, alternative plan on July 31, 2012.

Speculating that NLIC will fail in efforts to rehabilitate the business, or second-guessing the decisions and actions of potential investors, are not reflective of goodwill, and more significantly, harm the long-term interests of policyholders.

The primary intention of NLIC is to be able to serve policy holders on a healthy footing as a viable insurance business. Therefore, the company believes that liquidation proceedings being threatened by the incumbent conservator appointed by the IC is the worst possible option for its policyholders and creditors. Thus, as stated, in November, 2012 NLIC requested 90 working days from the day the conservator is replaced, to allow the company to work options which have been identified, including negotiations with several potential investors who have shown their interest in the company.

Another option is to offer policy holders the opportunity to convert their PDF holdings into equity in the company. This option will allow the company to continue operations and over time enable policy holders to recover their investments as owners of NLIC. With the company’s current assets consisting primarily of real estate holdings, and given the positive state of the economy and a bullish outlook for the future, the value of these assets will grow and increase the equity value of policy holders. Other options are under discussion with possible partners, which they do not wish to disclose at this time.

After World War II, when the country’s currency was demonetized, all bank deposits were nullified, and premium payments were declared valid, NLIC did not declare bankruptcy and instead made the difficult decision to honor all policy obligations and continue doing business.

In the same spirit, NLIC today is pursuing its rehabilitation efforts to keep faith with its policyholders, creditors and other stakeholders, and the Filipino people whom it has served for almost 80 years.

In the end, NLIC can only succeed with effective regulatory supervision that will support its rehabilitation, in order to achieve the best possible outcome for policy holders.