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Prudentialife Plan Philippines bankrupt closedThe Insurance Commission on February 3, 2012 issued a “Stay Order” on the request of troubled pre-need firm Prudentialife Plans Inc. for corporate rehabilitation.

With the “Stay Order” decision, all payment of claims by planholders effective February 6, 2012 are suspended. That means starting February 6, all Prudentialife planholders cannot file for any claims against the company until its corporate rehabilitation plan is approved.  All claims being processed, however, as of February 6 will still be honored and funds will be released to planholders.

Notice to Prudentialife planholders and other stakeholders

The Insurance Commission directs all Prudentialife planholders, stockholders, creditors, and other interested parties to view and comment on the verified proposal for corporate rehabilitation submitted by the company. Details of the proposal are available at Prudentialife’s website. Deadline of  comments on the said rehabilitation plan is on February 25, 2012.

Planholders and other interested parties are also encouraged to attend the consultation hearings scheduled on March 2 and 13, 2012, 9 am, at the IC Board Room, 2nd Floor of the Insurance Commission building at United Nations Avenue in Manila. The sessions will discuss the process of corporate rehabilitation for Prudentialife.

History of trouble

Prudentialife has been experiencing financial difficulties for the past several years. In September 2008, the company’s trust and investment assets were valued at P14.16 billion — P5 billion short of the P19.5 billion reserved fund required by the Securities and Exchange Commission (SEC).

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In an attempt to reduce this deficiency, the company unilaterally lowered the interest rate of its pension plan products from 12% per annum to 6% per annum.

Prudentialife received another blow in 2009 when the SEC canceled the company’s dealers’ license which terminated their ability to sell new pre-need plans to customers. Still, the company promised to continue honoring their obligations to existing planholders. Investments-wise, however, it was downhill from there for Prudentialife.

In its 2010 financial statements, the company reported total assets amounting to P10.97 billion. But the company’s liabilities that year reached P20.21 billion, translating to a deficiency of P9.23 billion.

By September 2011, this deficit has ballooned to P10.53 billion — with Prudentialife booking assets worth only P9.15 billion versus incurred liabilities amounting to P19.67 billion.

Reasons for failure

Prudentialife blamed several factors for their eventual downfall. Among the reasons cited by the company for their failure to meet their obligations to planholders include:

1. Old plans that guaranteed high benefits — the company claims the benefits on the plans were based on actuarial assumptions that drastically changed due to “subsequent events beyond the pre-need companies’ control.” They cited an assumption in the case of educational plans wherein tuition rates were expected to increase only by the government-mandated cap of 10% per year but rose more than expected after the government adopted a policy of deregulation with regard to tuition fees.

2. Global economic crisis — Prudentialife said they were not able to generate the projected returns on their investments due to the global financial meltdown in 2007 and 2008 led by the collapse of Lehman Brothers,  Merill Lynch, and other big financial institutions.

3. SEC rules on investment — the company also blamed the SEC for its rules disallowing pre-need firms to invest in unlisted companies and properties that were not income-generating. Prudentialife claims the SEC forced them to divest investments in those types of assets regardless of the loss they would have to absorb due to such divestment.

4. Revocation of Dealers’ License and Permit to Sell — the SEC and the Insurance Commission were tagged as culprits for their failure to act on Prudentialife’s request to reinstate the company’s dealers’ license which, according to them, would have enabled them to sell new plans and ultimately restore financial viability.

5. Unscheduled termination of plans — Prudentialife argues that more than 50,000 plans, amounting to P3.8 billion, were terminated by planholders as of September 2011 due to fear supposedly brought about by the revocation of their dealers’ license and the downfall of other pre-need firms such as College Assurance Plan (CAP) and the Legacy Group. The termination of plans resulted to non-payment of premiums which purportedly impaired the liquidity of Prudentialife’s trust funds.

Corporate Rehabilitation Plan

As opposed to pursuing liquidation where the company’s assets will be sold in order to pay creditors and planholders, Prudentialife is seeking corporate rehabilitation where it will restructure itself and attempt to bring the company back to profitability. Among its proposed strategies are:

Continue the life plan business. The company claims the trust funds for its life plan business is more than enough to cover all life plan obligations. Thus Prudentialife implores the SEC and the Insurance Commission to reinstate its dealers’ license to allow the company to sell new life plans and continue the life plan business.

Spin off the education and pension plans business to Manila Bankers Life Insurance Corp. Since the trust funds for the education and pension plans cannot meet all obligations, Prudentialife is proposing a haircut to the benefits promised to planholders. Alternatively, the company is proposing to transfer these two business units to another pre-need firm Manila Bankers Life Insurance (MB Life) that will assume all obligations to Prudentialife’s education and pension planholders.

It is sad that the Filipino planholder is again meant to suffer with the demise of Prudentialife Plans. We thus call on the SEC and the Insurance Commission to implement stringent, appropriate, and urgent reforms to prevent another pre-need firm from experiencing the same fate; otherwise, the pre-need industry will accelerate its fade into oblivion due to major loss of consumer trust.

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