TRANSCRIPT: Speech [As delivered], Finance Sec. Cesar V. Purisima, February 10, 2012. *First 8 minutes inaudible Interest rates are shrinking. In fact, bank will have challenging times also making money. You have to be truly efficient to squeeze that intermediation margin. In the case of your industry, you need bigger capital basis so that 1) you can reduce your overhead; you reduce your costs per client serve; 2) you increase the breadth of investment opportunities available to you with size, youre able to spread the risk across many more clients, many more products and maybe across more geographic boundaries. This business is about scale, this business is about efficiency and its a trust business.

People entrust your money to them. One of the leading agents of Prudential met with me the other day with the Commissioner. And she was so desperate; she was so worried for her sub-agents. She was worried for the life of her sub-agents because she said that theyve sold these products to powerful people who will not take this sitting down.

I told her, Well, if youre seriously worried with your security, we better put you together with the police. But clearly, when you sell you make promises. And the key to sustainable business, to continued success, is meeting those promises. And thats why this industry cannot afford more Prudentials, more CAP, more PET, more Pacific. We need to put a stop to this.

We, in the government, have the responsibility to protect the consumers. There are more consumers to owners of businesses.

I believe there is a rule for the pre-need industry in the Philippines and in other countries. But it has to be better structured, better regulated, better capitalized.

The regulators in the past did our country, yourselves the costumers, a disservice by just agreeing to everything that you requested. There were no accounting rules, there were no standards. You just wanted a free-willing environment. But clearly, when we look at the past, that is not sustainable and that is why the insurance industry, of which before you became a part of the Commission, had strict rules. That is why we have less problems in the industry – because theyve learned lessons in the past from other countries.

So, Im here this morning to seek your help to we can work together to make this industry healthier; so you can design better products; so that you can really be a tool for a mobilization of savings; a tool for realization of dreams; a tool for entrepreneurship; a tool for creating jobs.

I see a role for this industry but it has to be structured properly; regulated in a better manner. You must be open to changes. You cannot just go to your congressman or mayor or others and seek favourable treatment because the market is not forgiving.

There was a story about a president before who tried to repeal the law of supply and demand but these laws are not created by congress. You operate in the market. Interest rates are not legislated; interest rates are determined by the market. Investments returns depend on opportunity; depend on how well you choose this. And your profitability depends on how well you design your products and how well you manage your company.

Thats why Ill work closely with the Insurance Commissioner, who will in turn, I expect to work closely with you so that we can once and for all deal with the challenges your industry is facing. But I am sure of a couple of things. One, we need bigger, better capitalized companies. Two, we need more structure in the design of products and in rules for qualified investment. Three, we need better governance. In fact, Ive asked Commissioner Dooc to look at the past to make sure that owners have not abused the trust fund and that there were no related party transfers of assets to protect the interest of the many consumers who now have to face the bulk of the pain as a result of the problems.

In the case of Prudential, Ive asked Commissioner to work with the receiver to make sure that its audited properly and to give me assurance that there were no such things. Im not making any accusations. I just want o make sure that all the assets that belong to the trust fund and that should belong to the investors given to the investors.

Lets learn from these problems; lets be willing to put aside today so that we can make a better future not only for your industry but most importantly for your costumers.

Again, you know where to reach me. You dont need to pay full page ads, its a waste of money. Call the commissioner, you can set a meeting. We have opened minds, we have ears that listen. But clearly, you must have the same too because it takes two to make things happen. That is why I am so happy that you gave me this opportunity when youre again facing challenges.

I believe that that the Commission and were trying to help the Commission improve its ability to help you by getting it a bigger budget, by asking the DBM to create more deputy commissioner positions. Deputy Commissioner Chiong is a hardworking person but theres simply too many segments of the industry already. Therefore, we need deputy commissioners who will specialize on each of the segments of the industry that are under the Insurance Commission so they can work together as a team to be of better service to you.

We also would like to hear from you as to what changes that you think would make your industry, your companies stronger.

Again thank you for giving me this opportunity and hope you have a good meeting today. Thank you.

*Some excerpts from the ambush interview

On CVPs comment on recent developments in the industry

As you know in the past weve had problems with CAP, with Pacific, with PET and many more. Clearly, this is a result of I think *[a bad]* product; its regulations were too lax in terms of where investment can be made and how the products were designed. We need to work with the industry to have better governance so that they can become a really strong component of our capital market “ in our savings mobilization, in our infrastructure.

There is no replacement for good governance because government have their own governance issues that the president is dealing with; corporations must also have good governance. Hindi lang public, ˜yung private din. I think its important that in making business decisions, they have the interest of their stakeholders at heart and in making promises, the must also have the interest of the customers at heart. And making promises that are too good, that will most likely ***, is something that we do not want.

On other pre-need companies rumoured to be in the same boat as Prudential

Thats why the Insurance Commission will have to work closely with the industry to come up with a program for consolidation, for recapitalization of the industry. Theres no replacement for a well-capitalized market. In designing products you can make mistakes. But if your capitalization is substantial, then youll be able to absorb ill-designed plans. Stronger, capitalized entities can absorb changes in market conditions such as whats happening now with the lower interest rate environment. As Ive mentioned, some of them still has promises of returns of 15%. Where will you get that? So we have to work together to avoid situations such as this.

On his speech re looking into mismanaged funds

If theres a problem, we want to make sure that all the assets that belong to the trust fund, that should go to the investors, should be with the investors. I just want that assurance. Ive asked the Insurance Commission to ask the receiver to request for a thorough audit of not only existing assets but assets in the past that were probably sold.

On CVP having confidence in pre-need industries

I believe the insurance industry, the pre-need industry that is well-capitalized, well-regulated and well-governed has a very important role in mobilizing savings; in helping our people deal with their financial needs.

On SEC prohibiting plans before

If its a poorly designed plan, I really believe that it should be stopped. In fact, I think it was a wise decision to stop because if you continue to sell plans that cannot be met, in effect youre making false promises, kawawa naman yung mga bagong investors. Parang kwan na ito, parang kumukuha ka ng pera sa mga bagong investors para bayaran ang mga dati mong promises. Ilegal napo iyan, ayaw nating gawin iyan.

On 31 other pre-need companies in danger right now

That is why the industry will have to work more closely with the Insurance Commission to come up with a plan thats minimum will include increase capitalization, consolidation, better designed products. Open-ended plans created so much problems. They were so popular because from the standpoint of the buyer they were too good. But there are products that are too good to be true; too good to be sustainable. Thats obviously something we want to prevent from happening.