Regulators seek P200-M hike in capital of pre-need companies

MANILA, Philippines - Regulators want the minimum capital requirement for the pre-need industry to increase by another P200 million to ensure the protection of the investing public.

“The plan is to increase minimum capital level to P250 million for one product line, P275 million for two product lines, and P300 million for all three product lines,” sources within the Department of Finance (DOF) said.

The present minimum capital level stands at P50-million for one product, P75 million for two products and P100 million for the complete plantilla of three product lines. The basic pre-need products are pension, life or memorial, and education, while the capital level was set in 2003.

The same sources said that the Insurance Commission (IC) has been instructed to review the amount mandated by law to be placed in a trust fund.

Since the IC took over the regulations of the pre-need industry under Republic Act (RA) 8929, or the 2009 Pre-Need Code of the Philippines, it had been reviewing regulations passed on by the Securities and Exchange Commission (SEC), the previous regulator.

Last week, Finance Secretary Cesar V. Purisima said that government wants an increase in the capital level of pre-need companies to at least five times.

Purisima also said that the implementation of the higher capital requirement would be done in a staggered basis to give firms time and space to adjust to the new requirements.

 “You increase the breadth of investment opportunities available with size, to be able to spread the risk across many more clients, many more products and maybe across more geographic boundaries. This business is about scale, this business is about efficiency and it’s a trust business,” he said.

Previously, the trust fund represented 40-percent of plans sold. Under RA 8929, the IC was given the blanket authority to determine the amount involved. A trust fund is required to be established as reserves for future claims or plan maturies. A trustee bank is appointed to hold the funds, and look for investment products to grow the trust fund.

The pre-need industry started in the late ‘90s under the guidance of the SEC. It ballooned to over a hundred players but started to sputter when plans matured, leading to thousands of empty handed plan holders, billion of pesos lost, and an industry that shrunk to a little to over 40 players by 2003.

 Thousands more found themselves in the wrong end of the deal when major players like the College Assurance Plan (CAP), Pacific Plans Inc., Pet Plans Inc., Professional Plans, and Prudential Life Plans Inc. could not fulfill matured plans.

By the time it was “adopted” by the IC, there were a little over a dozen players with licenses to operate.

Presently, there are 21 licensed pre-need companies that recorded a combined premium income of P7.4 billion at the end of 2010.

Total assets reached P88.3 billion, total liabilities of P78.8 billion, pre-need reserves of P67 billion, and trust funds amounting to P79 billion.

As of the middle of 2011, premium income amounted to P4.8 billion, assets expanded to P88.5 billion, but the trust funds were reduced to P78.5 billion.