Friday, January 16, 2009 SEC cuts preneed companies some slack By Chino S. Leyco, Reporter The Securities and Exchange Commission (SEC) has decided to relax its capital rules on the preneed industry to prevent its collapse amid the global financial crisis. Jose Aquino, SEC director, said the regulator formulated the terms and conditions for the application of multi-year capital and trust fund build-up of industry players. Under the new regulation, a firm must render an acknowledgment letter for the trust fund deficiency or capital impairment based on the actuarial validation of audited financial statements for 2007. The preneed firm is required to present a five-year projected financial statement together with assumptions taken as well as a 15-year financial program. In case the company’s condition improves during the implementation of the program, the regulator has the prerogative to shorten the period. Firms with approved applications must immediately address their respective trust fund deficiencies and capital impairment within 60 days. The firms must also fund the deficiency between the trust fund and preneed reserves within 2009 and 2012. The Philippine Federation of Pre-need Plan Companies Inc. (PFPPCI) earlier said the industry is realizing huge losses due to the mark-to-market rule of the SEC. In a letter to the SEC, the PFPPCI said trust funds of member firms’ plans registered huge “unrealized” erosion in value in recent months because of the economic slowdown. The problem stemmed from plans that were approved in the past based on assumptions that were prudent at that time, but had since been eroded by the global financial crisis. “Our problem is the growing obligations on plans sold in the past, which were priced per actuarial feasibility studies that were then viable,” the group said. “These plans assumed interest yields of up to 16 percent per annum when key interest rates and Treasury bill rates were 20 percent per annum,” it said. In a separate position paper, the group said putting up capital and injecting new funds into the trust funds is no longer reasonable given the present economic environment. If SEC would be firm about the required capital boost, PFPPCI said chances are the majority of its members would refuse to do so, and opt to stop selling and just attempt to service the plans. “It will only aggravate the problem, as it will also be the death knell of the industry. We sincerely believe that the closure of the industry will not result to the protection of planholders,” the federation said. The SEC had said it is looking into the need to tweak the mark-to-market rule of booking the “fair price” of bonds and equities bought by investment houses, mutual funds and preneed firms’ trust funds amid the global financial crisis.