MANILA, Philippines - Rules implementing the Pre-Need Code have been released, transferring the power to regulate the pre-need industry to the Insurance Commission (IC) from the Securities and Exchange Commission.

The implementing guidelines of Republic Act No. 9829 or the Pre-Need Code of the Philippines, signed by Insurance Commissioner Santiago Javier Ranada on March 8, were published in broadsheets yesterday.

Federation of Pre-need Plan Companies, Inc. President Caesar T. Michelena said the industry welcomed the release of the implementing guidelines.

“The IRR [implementing rules and regulations] are consistent with the intent and the spirit of the Pre-Need Code. The Federation is glad the IRR was completed and signed by the new Commissioner after consultation with us. This will mean stability and permanence of the industry as a whole,” he said.

The pre-need industry has been rocked by scandals, beginning with those that were forced to close in 2004 when they could no longer serve the claims of “traditional” educational plan holders.

These plans, also known as “open-ended” plans, obligated these firms to shoulder beneficiaries’ tuition fees but these fees had kept rising as a result of deregulation.

And just last year, pre-need firms warned of demise after their trust funds sank as a result of soured investments in the wake of the financial crisis.

Pre-need sales have been declining, with January-August 2009 figures showing a drop of more than a quarter to P6.25 billion.

The just-released implementing rules state that pre-need companies that will be incorporated after the effectivity of the law are required to have a minimum paid-up capital of P100 million.

No firm can engage in the pre-need business without obtaining a license from the IC to issue education plans, pension plans and life or memorial plans.

The license shall expire one year after the date of registration and may be renewed if the pre-need company has no solvency and trust deficiencies, no paid-up capital impairment and is compliant with provisions of the Pre-Need Code and other circulars, rules and regulations that will be issued by the IC.

The rules also state that within the 45 days after the grant of the license, the pre-need firm shall submit a registration statement to the IC signed by the chief executive officer that specifies the amount and number of each type of pre-need plan it intends to sell.

The IC can deny the registration of a pre-need plan or a pre-need firm based on its latest audited financial statements, trust fund annual statements and reserves valuation report.

The registration of any pre-need plan or permit to sell the pre-need plan will be cancelled by the IC on the following grounds:

• it is insolvent;
• it has violated provisions of the Code, rules and any orders of the IC;
• it has engaged or about to engage in fraudulent transactions;
• it has made fraudulent representation in circulars or other literature distributed concerning the firm; and
• it does not conduct business in accordance with the law.

If necessary, the IC can compel the production of books and records of the pre-need firm, examine the officers of the firm and require a balance sheet and an income statement certified by an independent public accountant.

“If the issuer shall refuse to permit an examination to be made by the commission, its refusal shall give ground for the cancellation of registration,” the rules stated.