MANILA, Philippines - The Department of Finance (DOF) and the Insurance Commission (IC) said that Prudentialife Plans Inc.’s proposed rehabilitation program must be settled by the first half of 2012.
Adopting a rehabilitation plan will decide the fate of the 330,264 plan holders, the P10-billion deficit in its trust fund, and the fate of the 34-year-old pre-need firm itself.
Finance Secretary Cesar V. Purisima said that the Insurance Commission wanted to resolve the issue by end June this year. Originally, it was set for this March but government decided to hold several public consultations with the plan holders, officials of Prudentialife Plans, and government.
“Insurance Commissioner Emmanuel Dooc has set the target deadline to end June since they will look into other corporate assets of Prudentialife Plan and related companies,” Purisima said.
At present, IC is still examining all the documents, assets and checks held by Prudentialife Plan to determine, among others, a petition by the pre-need company to pay-out plan holders with maturing claims before the Feb. 6 stay order issued by the IC.
The stay order was issued to prevent Prudentialife Plans from paying claims as government felt that the trust fund deficiency would affect maturing plans beyond 2015.
In the public hearings last Friday, emotional plan holders asked Prudentialife Plans to pay claims for maturing education plans that will pay for graduating students and the May tuition period.
Prudentialife Plan president and chief executive officer Jose Alberto T. Alba said that they have been asking the IC permission to pay claims as an immediate remedial measure, and permission to operate under the strict guidance of the commission.
Alba said that they want to continue to operate and sell pre-need products, which is mainly education, life or memorial and pension.
Thus, instead of liquidating the company, Prudentialife Plans came out with a rehabilitation plan under the guidance of the IC-assigned conservator.
Lawyer and conservator Rosario Bernaldo said that one of the three basic options facing the pre-need firm and its hundreds of thousands of plan holders, is to act as if nothing was happening.
“Or government can liquidate the company, and divide whatever cash can be squeezed out of the company, and then divide it among the thousands of plan holders,” Bernaldo said in the public hearing attended by over a hundred of plan holders.
The third option would be to adopt a rehabilitation plan, which the conservator would propose with the cooperation of the troubled company.
Under the rehabilitation program, the plans will be terminated and converted into an insurance policy under Manila Bankers Life Insurance Corp. (MB Life), a medium-sized life insurance company licensed by the IC.
Under MB Life’s Insurance Exchange Program, the “converted” plans will be life policies that will unfortunately be lower in value (at best 80% of the original value) from the original pre-need plan.
But it will have a 10-year life program that promises a guaranteed earnings of 5% per annum. In the event of an early demise of the policyholder, he/she will get the full benefit of the program.
IC officials, meanwhile, said that the outcome of the Prudentialife Plans issue reflects the attitude of government towards the pre-need industry.
Purisima said that pre-need companies have a place as an investment option for the population, but it must be strengthened further to ensure avoiding another scenario which he called the “Prudentials, CAPs, and Pacific Plans.”
The immediate step was to increase the capital base of the existing pre-need firms. In the long term, more measures will be put in place to avoid similar scenarios.
“You increase the breadth of investment opportunities available with size, to be 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 it’s a trust business,” he said.
From the present P50-million minimum capital per product, it will be required to increase by an additional P200 million or to P250 million for one product, P275 million for two products, and P300 million for three products.
There are 21 pre-need companies licensed by the IC, from a high of over a hundred. The principal reason was the inability to pay maturing claims in a changing economic environment.