Purisima says SEC move to revoke Prudentialife's license 'wise'
MANILA, Philippines - Finance Secretary Cesar Purisima took to task pre-need companies and insurers that promised planholders high returns, but failed to deliver due to flawed investment decisions.
Purisima made the statement after regulators ordered pre-need firm Prudentialife Plans Inc. to stop paying claims so that it can preserve whatever is left of its trust fund.
"Clearly, this is a result of poorly-designed products, regulations that were too lax in terms of where investments can be made," he said.
"In making investment decisions, they should have the interests of the stakeholders at heart."
Purisima reiterated the need to consolidate the industry to make sure that only well-capitalized companies will survive.
"There's no replacement for well-capitalized firms. In designing products, you can make mistakes. But if your capitalization is substantial, you can absorb this. Better capitalized companies can better absorb changing market conditions like lower interest rates. Some of them still promise a rate of return of 15%. Where will you get that?"
Prudentialife's permit to sell
Purisima, meanwhile, said that the Securitires and Exchange Commission (SEC) was right in revoking Prudentialife's permit to sell in 2009 after failing to meet a required capital and trust fund build-up.
Prudentialife's trust fund deficiency has ballooned to P12 billion as of last year.
“I think it was a wise decision to stop because if you continue to sell plans that cannot be met, in effect, you’re making false promises, kawawa naman yung mga bagong investors."
The SEC regulated the industry prior to its transfer to the Insurance Commission (IC) in 2010.
On Feb. 3, the IC issued a stay order on the release of all checks for maturing educational and pension plans of Prudentialife to preserve its P7.8 billion trust fund.
Prudentialife blames the revocation of its permit, along with the global financial crisis in 2008, for its poor financial condition.
"Kung tinulungan lang kami, 'di aabot sa ganito ang sitwasyon," said the company's president Albert Alba.
Alba apologized to planholders. "We apologize. We only got the IC order Monday."
Alba, however, said that pending a decision on whether the company will be rehabilitated or its assets liquidated, the freeze in claims payments is "favorable" to all planholders. "We would rather protect the P8 billion than deplete it and the others get nothing."
The company and the IC said that if payments are made to maturing plans, the trust fund for educational plans will be depleted by 2014, and for pension plans by 2016.
If the money is divided among the 300,000 planholders, meanwhile, each will get less than half of what they have remitted to the company. - Lois Calderon, ANC and Alvin Elchico, ABS-CBN News