7 of 24 pre-need firms with dealer’s licenses had trust fund deficiencies

MANILA, Philippines – Seven out of 24 pre-need firms with existing dealer’s licenses have incurred a trust fund deficiency as of Dec. 31 last year.

Data obtained by The STAR said based on the interim financial statements filed by the 24 pre-need companies, one firm with a big customer base had a trust fund deficiency of P4.27 billion, while another was short of P336 million.

The 24 pre-need firms with dealership licenses for 2009 are: AMA Plans Inc., Ayala Plans Inc., Caritas Financial Plans Inc., CityPlans Inc., Cocoplans Inc., Danvil Plans Inc. (formerly Berkeley International Plans Inc.), Destiny Financial Plans Inc., Eternal Plans Inc., First Country Plans Inc., First Union Plans Inc., Grayline Plans Inc., Himlayang Pilipino Plans Inc., Loyola Plans Consolidated Inc., Manulife Financial Plans Inc., Mercantile Careplans Inc., Paz Memorial Service Inc., Permanent Plans Inc., Philam Plans Inc., Provident Plans International Corp., Prudentialife Plans Inc., St. Peter Life Plan Inc., Sun Life Financial Plans Inc., Transnational Plans Inc. and Trusteeship Plans Inc.

Documents show that as of Dec. 31, 2008, the pre-need industry had a trust fund of P76.23 billion against reserves of P75.46 billion.

It resulted in a surplus of P772 million based on an assumed yield of 11 to 12 percent.

An industry source said the 11 to 12 percent assumption was still realistic when these pre-need companies filed their financial reports in April 2008, pointing out that trustee banks even supported it.

The same source said pre-need firms used the same assumption when they filed their interim financial statements in December.

“If we use 11 and 12 percent, perhaps no deficit will be reported but if we don’t earn it then the fund will not grow as expected so a problem will result,” the source said.

The source said filings for this year will paint a totally different picture of the industry, as pre-need companies will use the new and lower yield.

“I doubt there will be any surplus,” the source said.

Another source who asked not to be named said pre-need firms with financial problems were not included in the list.

Observers said conservative estimates show that the industry’s trust fund deficiency could have gone up to P70 billion as of end-December if the projected yields were set at a more realistic level like six percent.

The source said the rule of thumb is for every one percent lower yield, liability goes up by 10 percent.

“If total liability is say P90 billion and rate is reduced from 12 to six percent, then it will go up by 50 percent,” the source said.

Earlier reports said the industry had posted a P46.83-billion trust fund deficiency as of June 2008 due to poor earnings from investments owing to the global financial crisis.

The Philippine Federation of Pre-need Plan Companies said the root cause of the industry’s problem is the huge basket of old plans which were priced per actuarial feasibility studies that were then visible.

These plans assumed interest yields of up to 16 percent per annum when key interest rates and T-bill rates were 20 percent per annum. 

Under these past assumptions, tremendous volumes of business were underwritten under these past assumptions.

In view of an increasingly difficult business climate, many companies are thinking of various options, among them, unwinding the plans and paying all plan holders claiming this year or the years to come.

One third of the total pre-need firms operating in the country are expected to wind down operations and just focus on servicing clients, given a worsening global economic situation.

The Securities and Exchange Commission has eased the rules on the buildup of the capitalization and trust funds of pre-need companies to help them survive the tough business conditions.

It asked pre-need firms to first submit individual letters acknowledging their trust fund deficiency or capital impairment based on the actuarial validation, valuation report or audited financial statements for 2007.

Applicants were also required to submit a projected financial statement covering a period of five years, together with assumptions taken.

SEC targets Legacy’s other assets

Hubert Guevara, head of the SEC’s surveillance unit, said the agency was interested to know whether the Legacy Group had other undisclosed assets which could be used to settle claims of planholders.

Guevara said the raid on Legacy’s offices in Makati and Quezon City was in line with hardline efforts to build an airtight case against the cash-strapped Legacy Consolidated Plans Inc.

Documents seized during the raid could be used as evidence against the Legacy Group, he added.

Guevara said among these documents are official receipts, papers on time deposits of planholders, master list of planholders, and ledgers.

The raid was carried out with the help of the National Bureau of Investigation and on the strength of a search warrant issued by the Quezon City Regional Trial Court, he added.

Guevara said his investigators continue to search for additional evidence that could pin down the responsible Legacy officials.

“We want to see what other actions they engaged in which could warrant the filing of additional cases against them with respect to violations of the Securities Regulation Code,” he said.

“We’re developing other cases which we can’t divulge just yet.”

The SEC earlier recommended the filing of criminal charges against top officials of the Legacy Group based on the complaint of at least 14 investors who claimed that they had been swindled into investing P16 million in Galaxy Realty and Holding Inc., a conduit firm put up by Legacy Consolidated.

Named respondents were Celso de los Angeles, mayor of Santo Domingo town in Albay and chairman of the Legacy Group, his wife Ma. Concepcion, son Martin Nicolo, brother Victorino, mother Purita and Galaxy Realty officials Eva Villapando and lawyer Christine Limpin.

The respondents were charged with violating Republic Act 8799 and the Corporation Code for selling unregistered securities and misrepresentation by assuring investors that the principal amount of their investments is guaranteed.

The same fraudulent scheme was used by the respondents with Galaxy Realty as “business conduit of Legacy Consolidated Plans Inc. in its grand scheme to defraud the investing public,” the SEC said.

A similar case was filed on Feb. 26 by the SEC against officials of Legacy Card Inc., formerly known as Legacy Group Inc., and One Realty, also a conduit firm.

Turn over documents

The Philippine Deposit Insurance Corp. (PDIC) has urged former employees of Legacy-related banks to turn over bank documents still in their possession or face legal consequences of withholding information.

PDIC has been having difficulty compiling the records of depositors and transactions in the rural banks identified with the Legacy Group. Significant portions of bank records were not actually in the bank premises, the agency added.

The Bangko Sentral ng Pilipinas (BSP) has already shut down 12 rural banks identified with the Legacy Group and placed under PDIC receivership.

As the receiver, the PDIC was supposed to take over the banks and preserve bank records for the purposes of reconciling deposit insurance claims and to support subsequent investigations.

However, PDIC said bank documents were missing from some of the banks and were believed to be in the possession of former bank employees.

The PDIC needed these documents and these must be turned over to them, the agency added.

PDIC’s discovery of missing documents supported the BSP report that De los Angeles had given instructions to some Legacy banks to remove and destroy any documents that would link him to irregular activities.

Last week, PDIC said based on initial verification, it had classified about P6 billion in deposit accounts as doubtful.

These deposits would be subject to further scrutiny where completeness of documentation was vital, the agency added.

PDIC said demand letters have been sent to former officers of the closed banks for the submission of documents.

The PDIC has not received any reply so far, the agency added.

Senate looks into Barin papers

The Senate has started to scrutinize documents pertaining to the transaction between the husband of Securities and Exchange Commission (SEC) chair Fe Barin and a lawyer of Legacy Plans Consolidated Inc.

Energy Regulatory Commissioner Alejandro Barin Jr. sold a Pajero to Legacy Consolidated Plans legal counsel Christine Limpin.

Chairman Barin has confirmed the transaction but claimed she had nothing to with it.

Sen. Manuel Roxas II, Senate committee on trade and commerce chairman, said they are withholding judgment on Barin’s and her husband’s conduct until they have examined the documents and evidence.

“There are some documents that came into my office Friday last week,” he said.

“I learned about it yesterday, Monday. And I immediately ordered the staff to start authenticating it and verifying it.

“Among themselves, just one lawyer selling a car to another lawyer, it seems a normal occurrence but we are going through other documents… so we can make our judgments.”

The committee will also determine if there was impropriety in the lunch meetings between Barin, De los Angeles and a retired justice some five years ago.

“We are going through the documents… to establish a pattern of lunches or just one lunch,” he said.

“That’s why I am withholding judgment on this. I am withholding comment until we have studied all of the documents.”

PDIC to hand out claim forms

The PDIC will start distributing today numbered claim forms for all deposit accounts in the 12 Legacy-affiliated banks that had been padlocked.

In a paid advertisement on page 15 of The STAR yesterday, depositors of Legacy-affiliated banks were notified about the PDIC action to process claims for deposit insurance.

PDIC also assured depositors that the agency is “doing our best to process the claims for deposit insurance as soon as possible, given the constraints we face.”

“We are prevented from speedy evaluation by missing/incomplete bank records,” the PDIC said.

“We have sent demand letters to officers and employees of the Legacy-affiliated banks to turn over the documents to us because we need the documents to process claims. We have not heard from them to date.”

Payments will be made from the PDIC’s Deposit Insurance Fund, which is a government fund.

The 12 Legacy-affiliated banks are the Rural Bank of Paranaque Inc.; Bank of East Asia Inc.; Pilipino Rural Bank Inc.; Rural Bank of Carmen (Cebu) Inc.; Philippine Countryside Rural Bank; Rural Bank of DARBCI Inc.; San Pablo City Development Bank; First Interstate Bank (Rural Bank of Kananga, Leyte) Inc.; Dynamic Bank; Rural Bank of San Jose (Batangas) Inc.; Nation Bank; and Rural Bank of Bais (Negros Oriental) Inc.

‘Legacy risked OWWA funds’

Meanwhile, Roxas urged the Philippine Overseas Employment Administration (POEA) to dig deeper into how Legacy’s double your money scheme risked the stability of a trust fund for overseas Filipino workers being held by the Overseas Workers’ Welfare Administration (OWWA).

“Celso de los Angeles would not even spare OFWs,” he said. “We have to make sure that these recruitment agencies can address the problems of these OFWs, should any arise.”

Roxas said testimonies during the last committee hearing revealed that Asia Trust bank, with which at least 144 recruitment agencies had entrusted their escrow deposits, had signed an agreement with Legacy-affiliated Bank of Parañaque to double the amount of deposits.

POEA director Melchor Dizon told senators the agency requires all recruitment agencies to put up a P1 million escrow deposit in a bank, in this case Asia Trust, to secure claims of workers in case they encounter problems or difficulties with their foreign employers.

The POEA has discovered that escrow deposits of 144 recruitment agencies in Asia Trust were all transferred to the Bank of Parañaque for a 20 percent per annum interest, with the authorization of the recruitment agencies, he added.

Dizon said the government securities that secured the time deposits in Bank of Parañaque were insufficient, forcing recruitment agencies to cough up additional money to complete their respective escrow funds.

“The OFWs are the victims here in the end,” he said.

Roxas said the POEA, with the assistance of the Department of Justice, should determine if the recruitment agencies could be held liable for the insolvent state of the OFWs’ trust fund.

“We need to know if recruitment agencies are also at fault. After all, they already collected the 20 percent interest on their deposits,” he said. — Zinnia Dela Peña with Des Ferriols, Christina Mendez, Philippine Star