SEC gives pre-need firms 2 months to hike capital, trust fund

By Zinnia B. Dela Peña Updated March 02, 2009 12:00 AM

MANILA, Philippines - Pre-need firms which applied for multi-year capital and trust fund build-up with the Securities and Exchange Commission (SEC) will have two months from the approval of their application to reduce their capital deficiency.

Under the temporary relief package approved by the SEC, operating pre-need firms must decrease one third of their total capital impairment within 60 days from the agency’s approval of their application.

Half of the balance must be settled within one year from the deadline of submission to the SEC of their annual financial statements for 2009.

Pre-need firms were given a year from April 15, 2010 to settle the remaining half of the trust fund deficiency.

Those qualified to apply are the 24 pre-need firms which were issued a dealership license by the SEC for 2009. They were given until April 15 this year to submit their individual business plan to the SEC.

Amid tough economic times, the SEC has directed companies to refrain from declaring any form of dividends, stock options or warrants during the effectivity of the multi-year capital and trust fund build-up.

Without prejudice to the observance of law-mandated bonuses, pre-need firms are likewise barred from distributing any form of profit sharing, performance bonus and other compensation schemes that are based on the profits or earnings of the corporation to the members of the board of directors, executives and officers.

The SEC has also put a cap on salary increases, limiting it only five percent.

“The salaries, per diems, allowances, fringe benefits and any similar compensation and benefits of the members of the board of directors, executives and officers shall not increase by a total of more than five percent.

Applicants are required to submit a five year period projected financial statement together with assumptions taken as well as a 15-year financial program addressing the old basket of plans that are commercially impracticable, taking into consideration the respective maturity values of the plans.

The SEC has also relaxed the rules on investments by pre-need firms by allowing more investments in real estate, unlisted shares of stock, as well as planholder loans.

Investments in real estate may exceed the prescribed 15 percent of the total trust fund equity provided that the additional real estate properties are income-generating. They may also invest in memorial lots if they sell pre-need life plans.

Investments in unlisted shares will be allowed as long as the issuers are financially stable, solvent, have positive track records of growth, and are not related to the pre-need company.

The financial health of pre-need companies is fast deteriorating with the industry incurring a trust fund deficiency of P46.83 billion. This was in contrast to a P6.8 billion surplus in 2007.

Industry data showed that the end-December 2007 surplus was based on an assumed yield of 12 percent on their trust funds. Trust funds of pre-need firms reached P74.66 billion as against liabilities of only P67.86 billion.