Pre-need firms confident of surviving financial crisis

The Federation of Pre-need Plan Companies Inc. (FPPCI), which earlier warned of an impending collapse of the industry resulting from strict regulations and the global economic crunch, said the pre-need firms are liquid and will still be able to meet future obligations to planholders.

With the Securities and Exchange Commission easing its rules on the capital build-up requirements and booking of losses for pre-need firms, the group said it is confident it will survive the financial crisis over time.

“We’re grateful that the SEC gave us the opportunity to submit a capital build-up plan. It is a work-in-progress and along the way we intend to be proactive and transparent,”FPPCI president Juan Miguel Vazquez said in a press briefing yesterday.

The SEC has given pre-need firms three years or within 2009-2012 to fund the deficiency between their trust fund and reserves. Applicants are required to submit a five-year 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, taking into consideration the respective maturity values of the plans.

The SEC has also relaxed the rules on investments by pre-need firms by allowing more investments in real estate, unlisted shares of stock, as well as planholder loans.

Investments in real estate may exceed the prescribed 15 percent of the total trust fund equity provided that the additional real estate properties are income-generating. They may also invest in memorial lots if they sell pre-need life plans.

Investments in unlisted shares will be allowed as long as the issuers are financially stable, solvent and have positive track records of growth.

”I think three years would be enough to build up our capital. Big chunk of our concerns had already been addressed by the SEC,” said Coco Plans president Caesar Michelena.

Michelena, however, still expects the industry to incur a deficiency in its trust fund given continued bleak market conditions.

Majority of the industry’s trust fund is invested in the Philippines, at least P63 billion of which 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.

Vazquez, however, said that while the federation’s members are doing their best to stay alive in the highly-competitive multi-billion peso industry, there is no assurance that the industry will be spared from the worldwide financial crisis.

“With the world recession clearly showing that investment conditions will not recover for long and nobody can even assess how long…. long-term sustainability is not anymore certain,” Vazquez said.–Zinnia B. Dela Peña, Philippine Star