MANILA, Philippines - In light of Prudentialife Plans Inc.'s financial woes, Finance Secretary Cesar Purisima said Tuesday the government is looking at increasing pre-need companies' capital base requirement by five times more than the prevailing amount.

Purisima said the Insurance Commission (IC) is already studying the capital hike, which may be done in "staggered basis" to give the firms more time to meet the new requirement.

“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,” Purisima said in a statement.

Republic Act 8929 or the Pre-Need Code of the Philippines provides that a pre-need company incorporated after the effectivity of the law shall have a minimum paid-up capital of P100 million.

Section 9 of this law states that the IC, under the supervision of the Finance Department, "may prescribe a higher minimum unimpaired paid-up capital for pre-need companies.”

It also prescribes rising “minimum unimpaired paid-up capital” for existing pre-need companies before the law, depending on the number of plans they sell: P50 million for a single type of plan, P75 million for two types, and P100 million for 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 suspended the payment of claims of Prudentialife planholders to preserve what's left of the company’s trust fund after its reserve liabilities ballooned well over its assets.
 
As of December 2010, official IC data showed Prudentialife’s liabilities amounted to P19.25 billion as against a trust fund of P8.62 billion.
  
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.  
 
“Pre-need companies need to realize that their business is highly capital intensive,” Purisima said.
 
The same is true for the insurance industry, he added, stressing that 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’s should be all about the interest of those who entrusted their money to them for a secured future,” Purisima said.