The Finance department is looking at increasing pre-need companies’ capitalization five times more than the prevailing amount, a Cabinet official said, in light of the Prudentialife Plans, Inc.’s present financial woes.

“We are looking at the possibility of increasing capitalization of pre-need companies five times from where they are now, depending on the number of plans they are issuing. The Insurance Commission (IC) is already studying it,” Finance Secretary Cesar V. Purisima said on Tuesday.

“We need to have a pre-need industry that is sustainable for just like the insurance industry, it is the families investing for their future who will suffer should a company suddenly ask for rehabilitation,” he added.

Purisima said implementation of a higher capital may be done “in a staggered basis to give firms time and space to adjust to the new requirements.”

Section 9 of Republic Act No. 8929 or the Pre-Need Code of the Philippines stated the IC “may prescribe a higher minimum unimpaired paid-up capital for pre-need companies.” IC is under the supervision of the Finance department.

The Pre-Need Code of 2009 provides that a pre-need company incorporated after the effectivity of the law shall have a minimum paid up capital of P100 million.

The code also prescribed rising “minimum unimpaired paid-up capital” for existing pre-need companies before the law was enacted depending on the number of plans they sell: P50 million for companies selling single type of plan; P75 million for those with two types and P100 million for firms offering three plan types. Existing pre-need companies with traditional education plans, meanwhile, shall have a minimum unimpaired capital of P100 million.

Last week, the IC issued an order that suspended the payment of claims of Prudentialife to prevent the usurpation of the company’s trust fund as reserve liabilities ballooned well-over its trust fund assets.

As of December 2010, official IC data showed Prudentialife’s liabilities amounting to P19.25 billion as against a trust fund of P8.62 billion.

Under the Pre-Need Code, the IC is empowered to appoint a “conservator” once it is proven that a company is in a state of continuing inability or unwillingness to comply with the requirements of the Pre-Need Code. The conservator shall take charge of all the company’s assets and liabilities and collect all moneys and debts due the company to restore its viability.

In April 2009, the Securities and Exchange Commission, then the regulator of pre-need companies, asked Prudentialife to stop selling new plans due to its dwindling trust fund and a capital deficiency of P4.49 billion then.

“Pre-need companies need to realize that their business is highly capital intensive,” Purisima said.

The same goes to the insurance industry, he added, stressing insurers should start thinking about their clients’welfare over their own interests.

Bills amending the Insurance Code of the Philippines filed in both houses of Congress, among others, seek to prescribe higher minimum paid-up capital for insurers to further strengthen their financial conditions.

This would be significantly higher than the required minimum paid-up capital of P125 million last year.

Insurance firms are arguing that most of them are family-businesses and are therefore, may find it hard to consolidate with each other. “I say insurance and pre-need are businesses of scale. It should be all about the interest of those who entrusted their money to them for a secured future,” Purisima explained.
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