But Permanent Plans Tuesday said that the SEC decision to suspend its license was no longer necessary because it had decided not to sell new plans given the turbulent financial environment.
The SEC announced on Monday at the resumption of the Senate probe of the troubled pre-need industry that it had revoked the license of Prudential Plans to sell pre-need plans because of a deficiency in its trust fund.
Permaplans president Juan Miguel Vazquez said that his company had already informed the SEC of its intention to stop selling new pre-need plans.
Pre-need plans (education, pension and memorial) are contracts that provide for future services or payment of money at the time of actual need.
In a statement, Vazquez said Permaplans no longer believed in the viability of the pre-need industry as currently set up amid the economic downturn.
But Vazquez said the SEC decision to suspend Permaplan’s license came as a surprise.
He said it was unnecessary given the company’s decision not to sell new plans and to limit itself to servicing all claims. Contrary to the SEC decision, the company’s contracts allow Permaplans to change the mode of payment, he said.
Payment in kind
SEC Secretary Gerard Lukban said Permaplans’ license was suspended because the regulator did not approve of its proposal to offer alternative modes of payment to plan holders.
“They were proposing a dacion en pago (payment in kind) but their plans have to be serviced in cash. This (proposal) wasn’t approved in their registration statement,” Lukban said.
Lukban said Permaplans was in a situation different from Prudentialife, as the latter had applied for flexibility under a multi-year capital build-up program while the former had not.
Undue alarm
He said the SEC had wanted to keep the suspension of Permaplan’s license under wraps to give the company time to sort out its settlement initiatives without causing undue alarm to the public.
Permaplans has 10,800 plan holders as of end-December last year, based on company estimates.
Vazquez, who is also president of Philippine Federation of Pre-Need Plan Companies Inc., said his company was concerned about the protection of all its plan holders and was committed to promptly settle their claims.
35-percent loss
“A major factor to this decision was a 35-percent loss of our trust funds last year as a result of the ongoing global financial crisis,” Vazquez said.
He said Permanent Plans would increase its capital and trust fund with additional assets in order to settle fully all the claims of its plan holders.
“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.
Vazquez apologized to the public for the inconvenience, saying that the company sincerely believed that its offer to the plan holders was the best option to protect them.
“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,” he said.
Executive session
Lukban said the SEC would hold an executive session on Wednesday to discuss the situation of the pre-need industry and determine what other measures could be taken to help the sector.
“This is an extraordinary situation. They are feeling the impact of a global financial crisis,” Lukban said.
He noted that Prudentialife, for instance, was weighed down by paper losses given the turbulent financial markets.
“It’s unfortunate that this comes at a time that the Legacy issue is there. Unlike Legacy which unilaterally ceased operations, we are in close contact with these pre-need plan companies and are coordinating to look for ways to protect investors,” Lukban said.
Memorial plans
He said there were some pre-need products, such as memorial plans, which were still selling briskly even under tough economic times.
But Lukban said that the SEC had its rules and that companies which could not follow these rules would have to face sanctions.
The Legacy Group’s pre-need firms—Legacy Consolidated Plans Inc., Scholarship Plan Philippines Inc. and All Asia Plans Corp.—ceased operations in January ahead of any sanctions from the SEC.
The three pre-need firms have P1.3 billion in obligations to more than 50,000 plan holders.
Among the Legacy plan holders are more than 12,000 police officers and soldiers, who have paid close to P320 million.
24 firms offered relief
At the end of February, the SEC approved a basket of measures seeking to perk up the sluggish pre-need industry.
The 24 providers of pension, education and memorial plans with operating license for 2009 were given the option to avail themselves of some regulatory relief.
The relief included a leeway to build up their capital over a few years, and to infuse real estate assets and unlisted shares into the trust fund.
A trust fund is an asset account that includes stocks, real estate and bonds. It must provide a sufficient source of money at any given time to pay for current and future obligations.
The pre-need firms were given until April 15 to submit their individual business plan to the SEC. “It’s not mandatory. It’s a management prerogative if they want to avail themselves of these,” he said.
2 firms meet requirements
Lukban said only two pre-need companies decided to avail themselves of the regulatory leeway by submitting a multiyear capital build-up plan—Prudentialife and Coco Plans.
Coco Plans was able to comply with the requirements but Prudentialife’s plan to use certain assets to beef up its trust fund was not approved by the SEC.
Lukban said Prudentialife’s management had assured the SEC that its trust fund was enough to cover its obligations to about 400,000 plan holders.
Prudentialife’s trust fund is estimated at about P12 billion.
Hopefully, Lukban said other pre-need companies would stay afloat.
Case-by-case basis
Asked whether the industry was still viable, he said: “It’s on a case-by-case basis,” he said.
The 22 other pre-need companies with SEC license for 2009 are: AMA Plans, Ayala Plans, Caritas Financial Plans, CityPlans, Cocoplans, Danvil Plans (formerly Berkley International Plans), Destiny Financial Plans, Eternal Plans, First Country Plans, First Union Plans, Grayline Plans, Himlayang Pilipino Plans, Loyola Plans Consolidated, Manulife Financial Plans, Mercantile Careplans, Paz Memorial Service, Philam Plans, Provident Plans International, St. Peter Life Plan, Sun Life Financial Plans, Transnational Plans and Trusteeship
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