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Prudential Finally Collapses

r4k3t_m4n · 3 · 6999


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on: Sep 16, 2013, 12:19 PM
For years, Prudential Plans Inc. (PPI) has been in a rocky situation. PPI stopped servicing claims as early as Feb. 2012, and sadly, the gloomy day that all PPI plan holders had finally arrived! :( Here's the first part of a 3-part series published at the Phil. Daily Inquirer.

PPI collapse dashes dreams of 245,000 policyholders
By Michelle V. Remo/Philippine Daily Inquirer

(First of three parts)
“It was just too much to bear,” said Edna Roxas, a 45-year-old mother of two, upon hearing the bad news that Prudentialife Plans Inc. (PPI) had collapsed. Roxas, who worked as a midwife in Libya from 1991 to 2001 so she could send her daughter and son to college, said she had spent nearly P400,000 over a five-year period during her overseas employment to pay premiums for two educational plans she had bought for them.

“I did not mind going to the Middle East and working in long-hour shifts because I wanted to support my children and make sure they go to college,” Roxas told the Inquirer. Her job, she recalled, would often require her to work 24 hours. What she thought was a valuable investment proved to be good in helping pay the tuition of her daughter only for the first year in college. Her son, who would be in college next year, will never benefit from the educational plan.

Minerva Lubong, 61, who owns an eatery in Nueva Vizcaya province, expressed shock upon learning that PPI was in liquidation. She helped her husband, Abraham, who works as a farmer, pay for a pension plan bought from the preneed firm. The couple had banked on the preneed policy to help support them in old age.

“We were told that buying a pension plan was a good investment. It turned out we lost money because of what happened to PPI. It is difficult to accept that we just lost our money that way,” Minerva said in Filipino. The Lubongs paid a total of P84,900 from 2002 to 2006 as premiums for the pension plan, which was supposed to have matured last year. Under the preneed policy, which was in her husband’s name, they were supposed to get P100,000 in benefits last year and P100,000 in 2017.

245,000 plan holders
Roxas and Lubong were just two of some 245,000 plan holders who suffered losses from the collapse of PPI. Under the terms of liquidation of the company, policyholders will be reimbursed the amount they spent for premiums but with huge cuts. According to the Insurance Commission (IC), payments shall be done in two installments. The first covers the recovery of PPI’s liquid assets (cash), while the second covers nonliquid assets, mainly investments in securities.

Under the first installment, holders of PPI education plans shall get back only 19 percent of their total contributions; holders of pension plans, 40 percent; and those of memorial plans, 80 percent. This means that an educational plan holder who paid P100,000 in premiums but did not receive benefits before PPI’s collapse will recover only P19,000. A pension plan holder, who paid the same amount and did not receive benefits, ought to get P40,000, and a memorial plan holder, P80,000.

‘Accumulation method’
The IC said the computation used the “accumulation method,” or the amount to be recovered was based on one’s total contributions less the amount of benefits already received. Based on what was left of PPI’s trust fund, the total amounts to be distributed among plan holders under the first installment are the following: P315 million for educational plan holders, P2.3 billion for memorial plan holders, and P2.6 billion for pension plan holders.

The distribution of the checks to plan holders started on Aug. 15, the IC said. As for the second installment, the regulator said the amounts to be given to education, memorial and pension plan holders had yet to be determined. There was no schedule yet for the distribution of checks. It said the amounts would depend on the funds to be generated from the sale of the nonliquid assets, such as real estate, which has been estimated at P3.085 billion. Proceeds from the sale of the assets, however, may be lower as these will depend on the maximum amounts buyers are willing to pay.

Alba, P14B deficiency
With no sufficient resources to pay for its liabilities, PPI, which is owned by the Alba family, stopped servicing claims in February 2012. With rehabilitation proposals failing to materialize, the IC ordered the liquidation of the company two months ago.

The IC placed PPI’s trust fund deficiency at P14 billion (preneed companies are required to set aside portions of premiums collected from plan holders in a trust fund to ensure that these can pay future claims). It said that based on PPI’s liabilities, its trust fund should be about P21 billion to sufficiently cover its obligations to plan holders and creditors. However, the actual value of the trust fund by the time of its collapse stood at only about P7 billion, it said.

Based on its 2011 financial statement, a copy of which was obtained by the Inquirer, the total assets of PPI amounted to P9.25 billion compared with the P21.62 billion in liabilities. The value of the assets includes the P7.26 billion in trust fund.

Reasons for failure
Property and equipment accounted for P258 million of total assets. PPI has a building on Gamboa Street in Makati City. Other assets include cash, financial investments and loan receivables. Several reasons were cited for PPI’s failure. One was the significant increases in tuition that went beyond its actuarial assumptions. Because of a 1992 law deregulating the education sector, schools are allowed to raise tuition.

Another was the global economic crisis that began in 2008, which pushed interest rates to record lows. This development was blamed for reducing yields in PPI’s securities investments to levels below assumptions. Regulations disallowing certain types of investments, such as in stocks of unlisted companies, were also attributed as these allegedly forced the company to divest itself of some investments—even at a loss. Some plan holders who do not view the reasons as the entire truth clamor for an investigation to determine whether PPI mishandled their money.

Rolly Ocampo, spokesman of a group called Prudentialife Warriors, said it would be unfair if the preneed company would not be held accountable for the losses that policyholders were forced to bear. “We want authorities to conduct a formal investigation of what happened to it and to look into irregularities related to the liquidation,” Ocampo told the Inquirer. “Under the terms of the liquidation, policyholders will be able to recover only a small amount of their own money, and that is not fair,” he added.

Government audit
Insurance Commissioner Emmanuel Dooc said the agency’s audit of PPI looked into the reasons behind the firm’s failure. The results were being finalized and would be available soon, he said. “We engaged foreign auditors to look into the case of PPI. The findings will be reviewed by our lawyers,” Dooc said. He said the commission’s legal team would determine, based on the auditors’ findings, whether cases should be filed against PPI and the Alba family.

Chris Rafal, media relations officer and head of the IC public assistance department, said an investigation of a regulated entity that collapsed was a standard operating procedure. It would reveal whether the collapse of PPI involved fraud or was entirely due to poor investment decisions, weak business model and factors beyond the company’s control, Rafal said. “If the company’s failure was due to reasons other than wrong business judgment and if there is evidence of intent to misappropriate funds, then concerned people will be held liable,” he said.

(To be continued Tuesday)

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Reply #1 on: Sep 17, 2013, 03:45 PM
PPI collapse PART 2
Plan holders seek to defer liquidation of preneed firm
By Michelle V. Remo/Philippine Daily Inquirer

(Second of three parts)
As if their losses were not enough, policyholders of Prudentialife Plans Inc. (PPI) said the process of getting checks for the first installment was difficult and confusing. The Insurance Commission (IC) has ordered the liquidation of PPI because the preneed firm can no longer service the claims of some 245,00 holders of education, pension and memorial plans. The IC placed PPI’s trust fund deficiency at P14 billion.

Preneed firms are required to set aside portions of premiums collected from plan holders in a trust fund to ensure that they can pay future needs. In the first two weeks of the release of checks last month, over a thousand people would fall in line daily at the distribution site at the PPI head office building at 118 Gamboa St. in Makati City. Check distribution is from Monday to Saturday at 8 a.m. to 8 p.m.

Some complained about having to fall in line under the heat of the sun for hours, while others expressed dismay about the way the staff would accommodate queries from policyholders. “There were so many people waiting in line outside the building [of PPI] to claim their checks. The process of distributing checks was not systematic. Only the guards were answering questions from people in line outside the building,” Minerva Lubong said. She traveled from Nueva Vizcaya to Makati City three weeks ago to claim a check.

Wrong computation
Lubong said she was disgusted because of the wrong computation of the amount that she and her husband were supposed to get. The staff in charge of check distribution, however, was not at all helpful, she said. People in charge of the check distribution are employees of the appointed liquidator—San Diego, Ycasiano, Macia, Estroc, Castañeda and Sanchez (Symecs) Law Office.

Lubong said she was told that she and her husband would recover only P7,375.91, a fraction of the P84,900 in total premiums they had paid for the pension plan. Lubong said the P7,375.91 was even smaller than the annual contributions she and her husband had to pay—P16,980 every year for five years.

First installment
In the first installment of the liquidation process, holders of PPI education plans will get only 19 percent of their total contributions; holders of pension plans, 40 percent; and those of memorial plans, 80 percent. In the second installment, the IC said the amounts to be given to education, memorial and pension plan holders had yet to be determined.

Based on announcements on the amount that policyholders would recover, Lubong said there was an error in the computation of the amount due her husband. She was hoping to ask for a recomputation and later get the check containing the correct amount. However, after hours of waiting in a long queue at the PPI head office, Lubong was told to just file a complaint with the IC.

IC numbers busy
However, the IC was difficult to reach. Its telephone numbers were always busy, she said. “It is really difficult to contact the Insurance Commission. Plan holders are really having a hard time.” Chris Rafal, head of the IC public assistance department, asked for patience from policyholders. He said the IC public assistance division entertained queries from the public all the time, but it could not be avoided that trunk lines of the agency would often be busy because of the deluge of calls from policyholders.

E-mail queries
“We do answer queries even through e-mail,” Rafal said, adding policyholders may send queries to Rafal said the IC had divided the release of checks into batches to avoid overcrowding at the check distribution site. He said the schedules were posted on the IC website Policyholders are advised to visit the website first before going to the check distribution site.

Defer liquidation
A group of PPI plan holders does not agree with the amounts the IC said policyholders would recover from the liquidation of the preneed firm. Prudentialife Warriors calls for a deferment of the liquidation process, saying policyholders should get much more than the amounts to be paid in two installments.

“For our group, what we really want is to stop the ongoing liquidation of PPI and for investigations to be conducted first because we believe we should be getting more out of our own money,” said Rolly Ocampo, spokesman of Prudentialife Warriors. Ocampo said there had been no proper disclosure of how the amounts to be received by policyholders were arrived at.

The IC, however, said the liquidation and release of checks need not be deferred. The agency said it was in the interest of the plan holders to get a portion of their money while investigations were being conducted. The regulator belied allegations of lack of transparency in the decision-making process that set the amounts to be recovered by policyholders.

11-member board
Insurance commissioner Emmanuel Dooc said representatives of plan holders were part of the 11-member board that discussed the amounts to be distributed, taking into account the remaining value of PPI’s trust fund. “Five out of the 11-man board actually were representatives of the plan holders,” Dooc said.
Other members of the board came from the IC, the preneed industry, the Alba family and an independent actuary. Prudentialife Warriors also has questioned the IC decision to liquidate the entire PPI.

Ocampo said the entire company need not be liquidated because only the education plan business was problematic. He said pension and memorial plan holders of PPI should not suffer because of the financial problems that hit the education plan business. “The memorial plan, for instance, was a profitable business. Why should the entire company be liquidated, thus affecting all policyholders?” Ocampo said.
‘Profitable’ memorial plan
Prudentialife Warriors earlier proposed that the IC order the liquidation only of the educational plan business and allow the distribution of shares in PPI’s “profitable” memorial plan business to affected policyholders. The proposal, however, was thumbed down by the IC. Rafal said that contrary to the assumption of Prudentialife Warriors, the problems of the educational plan business had spilled over to PPI’s pension and memorial plan businesses. “PPI was just one company. The problems of the education plan business naturally affected the performance of the entire company,” he said.

Ocampo also accused the IC of approving the liquidation process without exhausting all means to rehabilitate the preneed firm. Rafal denied Ocampo’s accusation, saying the IC did all it could to have PPI rehabilitated. He said the regulator opened its doors for rehabilitation proposals, but no potential buyer wanted to infuse additional capital into PPI. He said one company, MB Life, wanted to take over PPI but it did not agree to infuse additional capital. What the company wanted to do was sell new PPI policies and then use portions of the proceeds to pay for the existing liabilities of PPI. Rafal said it was not in the interest of the public to let PPI sell new policies without capital infusion to nurse it back to health. “There should be capital infusion for real rehabilitation to take place,” Rafal said. “Otherwise, there could only be bigger problems in the future.”
P200M fee
Prudentialife Warriors also complained about the alleged lack of transparency in naming Symecs as the liquidator and the selection of Banco de Oro (BDO) as the sole bank that handles claims of policyholders who request that payments be deposited in their bank accounts. The group’s spokesperson also learned that Symecs would get at least 4 percent of the amount to be liquidated as fee. In the first installment alone, the fee would be more than P200 million. “Why should Symecs get a very huge amount when policyholders will be suffering significant losses?” Ocampo asked.

Rafal said that the selection of Symecs went through due process and that the law firm met the qualifications set by the IC the most. He said the cost of service and experience in handling liquidations were some of the qualifications. Without disclosing details, Rafal said Symecs was charging only a “small” amount for its service. Policyholders, meanwhile, may opt to request to have their checks deposited in their accounts if they do not want or cannot physically go to the check distribution site. The accounts, however, should be with any of the BDO branches nationwide.

Ocampo said requiring that the bank accounts be with BDO was a burden to plan holders who had no accounts with the bank. “What they want is for policyholders who have no existing accounts with BDO to open accounts with the bank. Opening an account entails cost and this is an added burden to policyholders,” he said. “Why BDO? Why do they have to favor just one bank?” he asked. Rafal said having one bank where checks that could not be picked up by the policyholders would be deposited was deemed prudent as it would reduce cost. He said the cost of liquidation was deducted from the trust fund that was being distributed to plan holders.

 :thumbsdow My parents are both PPI plan holders!!!  >:(

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Reply #2 on: Feb 21, 2014, 12:09 AM
Where's the Part 3?


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