WHAT could the officials of Securities and Exchange Commission (SEC), particularly of its non-traditional department, have felt upon hearing the news that Prudentialife Plans Inc. (PPI) is in deep financial trouble? Probably, they felt relieved because the company’s collapse did not happen under their watch. It came two years after the SEC lost jurisdiction over the pre-need industry to the Insurance Commission (IC) as mandated under Republic Act 9829, otherwise known as the Pre-Need Code of the Philippines. Wherever the blame lies, the focus should not be on either the SEC or IC or on anybody else for now but on the company itself, its past financial operations and what it can do to alleviate the pains of its suffering pre-need plan buyers. With its fall, it is certain that PPI would not be able to meet all its obligations although in press releases to the media, it assured plan holders that they could get their money back. However, there could be no guarantee of full recovery of investments.
Based on data posted on the website of ABS-CBN News PPI had, as of December 31, 2010, “P10.97 billion in assets [including trust fund] and P20.2 billion in liabilities resulting in P9.23-billion deficiency.” The latest financial report as of September 30, 2011 showed the company had a “total trust fund of P6.94 billion against total liabilities of P18.69 billion to plan holders for a deficit of P11.74 billion.
With all these numbers, how did the company reach this far, attracting pre-need plan subscribers when even earlier before the transfer of pre-need plans from the SEC to the Insurance Commission, PPI had had a taste of financial crisis?
A file culled from the SEC website suggested a company that should have been put in the freezer by the regulators. In a three-page order on the revocation of the certificate of PPI as dealer of pre-need education, life and pension plans, the SEC noted that as early as March 31, 2008, the company had capital and trust fund deficiencies of P4,498,755,222 and P3,641,624,725, respectively.
In the same SEC order, PPI proposed to “fund its deficiencies by way of shares of stock of its related companies.” SEC rejected this offer. Instead, it ordered the company to stop offering pre-need plans; infuse P100 million cash into the trust fund within 30 days from the date of revocation; increase the periodic deposit to the trust fund for its education, pension and life plans to 80 percent of the periodic collection; and convert the P1.944 billion deposit for future stock subscription into paid-up capital. SEC issued the order, signed by Director Jose P. Aquino, on April 20, 2009. If PPI was in such precarious financial condition then, the question is: has the company been operating or allowed to continue operating and selling pre-need plans despite the risks to investors as shown by the numbers? The officials of both the SEC and IC should have the ready answers.
Incidentally, when pre-need plan companies went to the Insurance Commission, they left an SEC department almost idle. The non-traditional securities department, headed by lawyer Jose P. Aquino, has been created specifically to supervise and monitor the issuance of pre-need plans by more than 20 operators. The change of jurisdiction expanded the IC functions but left the fate of an SEC department hanging in the balance. The SEC could not fire Aquino, who has not yet reached retirement age much less his staff. He remains a good asset to the SEC and it would not be easy to find an experienced lawyer like him who is well-versed on the workings of the securities regulatory agency.
Luckily, SEC Chairman Teresita Herbosa could not do any firing or dismissal of civil service eligible public servants. So, instead, the commission studied ways of utilizing the same department that handled the pre-need firms. According to lawyer Gerard Lukban, an SEC director serving as commission secretary, the same department that used to supervise pre-need plan issuers will remain a department whose functions will be redefined to suit a department for investor protection.
