Another pre-need bites the dust

PERMANENT Plans has decided to stop selling pre-need plans because it “no longer believes in the viability” of the pre-need industry given the tough times, its president and chief executive said yesterday.

Juan Miguel Madrigal Vazquez said the company had already informed the Securities and Exchange Commission of its decision to stop selling pre-need policies, but the commission suspended its license just the same.

He said Permanent Plans had also decided to settle all claims fully using its trust fund and other assets.

“The SEC decision suspending our license therefore came as a surprise because… it was unnecessary given our decision not to sell new plans and to limit ourselves to servicing all claims.…” Vazquez said in a statement.

The decision was also unnecessary “because our contract allows us to change our mode of payment.”

Permanent Plans was incorporated in 1989 and now has over 10,000 plan holders, most of whom hold pension plans.

Vazquez said the company’s main concern now was protecting all plan holders and settling all claims promptly despite its trust fund’s losses last year as a result of the global financial crisis.

To make up for the loss, Permanent Plans will increase its capital and trust fund with extra assets to settle all claims in full, Vazquez said.

“We expect to pay all our plan holders in the form of cash and other assets in the next four to six months,” he said.

“We are not required to put in these additional assets, but we are offering to do so. We also do not want to go to court for rehabilitation because this will take time and delay the payment to plan holders.”

The SEC had earlier revoked the dealer’s license of Prudentialife Plans Inc. for its failure to cover its trust fund liabilities.

At the start of the year, the Philippine Federation of Pre Plans Companies Inc., led by Vazquez, asked the SEC to give them time to rebuild their trust funds as a result of their losses.

The SEC responded by giving them up to five years to increase their capital by injecting cash and other assets to cover their deficiencies. The commission said the acceptable assets included income-generating real estate and unlisted shares that were not in any way related to the pre-need company holding them.

Vazquez said the first group of pre-need companies sold plans in the 1970s with an assumed yield of 16 to 18 percent, but pre-need firms were now getting yields of only 6 percent as a result of the hard times, and that meant less earnings and higher liabilities.

“The trust fund for old plans are not earning the interest rates and investment income that were based on approved actuarial feasibility studies, and [those] were priced low because they were then based on economic and investment conditions supportive of double-digit interest-income rates,” Vazquez said earlier. –Jenniffer B. Austria, Manila Standard Today