Total sales of the country’s pre-need companies fell 18.56 percent last year to P15.3 billion, according to latest data released by the Securities and Exchange Commission’s Non-Traditional Securities Department.
The number of plans sold, however, increased 10.8 percent to 253,678 from 228,952 in 2007, mainly boosted by a 64-percent jump in life plans.
The two other pre-need products, pension and education plans, suffered drops in their respective sales.
Sales of pension plans fell 37 percent to P7.31 billion as the number of plans sold declined 29.9 percent.
Education plans suffered the biggest drop in sales from P1.73 billion to P3.85 billion. A total of 10,152 plans were sold compared from 24,603 units the previous year.
Total sales of life plans amounted to P6.27 billion from an earlier P4 billion. The number of plans sold went up to 175,336 from only 107,070.
Initial collections, the first payment made by the planholder upon purchase of a plan depending on his or her mode of payment, reached P1.41 billion, down 25 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, has given pre-need firms until Feb. 15 this year to apply for a multi-year capital and trust fund build-up.
Pre-need companies must first submit a letter acknowledging the trust fund deficiency or capital impairment based on the actuarial validation, valuation report or audited financial statements for 2007.
Pre-need firms are also 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 has been 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 the 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.
While the end-2008 figures are still being collated by the SEC, industry observers believe that the deficit incurred would be much higher than the June figure.–Zinnia B. Dela Peña, Philippine Star