I.

The Pre-Need Industry

The Pre-Need Industry, like the Banking, Mutual Fund or Insurance industries, is an integral sub-sector of the Financial Services Industry. Pioneered as a uni uely Fili!ino creation in the "#$s, !reneed !lans acco%!lish the critical function of financial inter%ediation by building-u! the Fili!inos& !ro!ensity to save and delivering essential !roducts and services that cover the Fili!inos& basic needs in 'ducation, (etire%ent and )eath. Since its ince!tion in *+##, the Industry has gro,n to benefit %illions of Fili!inos, !roviding not only the afore%entioned acade%ic, !ension and %e%orial !roducts and services but also -obs and inco%e-earning o!!ortunities to thousands of agents and e%!loyees. The Industry has also been a driver and key link to the nation&s !rogress through ca!ital for%ation, %oving %oneys and invest%ents, currently in the range of over P#$Billion, and %anaging these through trust funds of universal banks and invest%ent houses. Through over t,o decades, the Industry registered double-digit gro,th in the late ".$s and early "+$s ,hen annual gro,th averaged over /$0 and total assets ,ere in the hundred billions of !esos. 1t its height, there ,ere over *$$ registered co%!anies in the Pre-Need Industry. The success of this Fili!ino Industry and the validity, in fact, of its original business %odel, has been bolstered through the years ,ith the entry of %ultinational giants such as the 1I2 grou! through Phila% Plans, Berkeley International 2rou! and Sunlife Financial 2rou!.

II. Basis for Industry Failure

Princi!ally, there are four %a-or, e3ternal factors that have caused the Industry&s te%!orary illi uidity and brought on i%!ending inability to service debts 4 5*6 the reality of 7ncontrolled Tuition Increases 587TI96 : ,here tuition fees have increased *; ti%es to <$ ti%es the original assu%!tions= 5/6 (estrictive trust fund rules : ,hich have constrained !re-need co%!anies to receive trust fund yields ,ell belo, the returns needed to allo, !re-need co%!anies to sufficiently %eet obligations under all the !lans= 5<6 the untenable 1ctuarial (eserve >iability 581(>96 sche%e : ,hich has negatively i%!acted the financial !osition of !re-need co%!anies, and= 5?6 the 1sian financial crisis of *++@ : ,hose !rotracted effects has !revented the econo%y fro% fully recovering : and the Industry Meltdo,n 5)o%ino 'ffect6 that has sent industry sales and collections on a downward freefall and plan terminations rise to an unprecedented scale and seen the collapse of a number of companies.

1. Uncontrolled Tuition Increases (UTI)

The !roble%s e3!erienced by the Industry are !eculiar to it. In fact, it is an industry-,ide contagion afflicting !re-need co%!anies offering traditional o!en-ended education !lans. This contagion is 7ncontrolled Tuition Increase 587TI96. Pre-need !lans are contracts ,hich !rovide for the !erfor%ance of future serviceAs or !ay%ent of future %onetary consideration at the ti%e of actual need, !ayable either in cash or install%ent by !lanholders at !rices stated in the contract ,ith or ,ithout interest or insurance coverage. Ty!ically, these ,ould include life, !ension, education and inter%ent !lans. Because of the stringent ca!ital

re uire%ents acco%!anying the regulatory a!!roval to sell each !roduct, %ost !re-need co%!anies ,ould only carry one or t,o !roduct lines.* Pre-Need !lans %ay also be categoriBed according to !lan value or the value of the benefits that the !re-need co%!any undertakes to deliver. The t,o ty!es of !re-need !lans based on this classification are fi3ed value !lans and actual cost !lans. 1 fi3ed value !lan has the a%ount of the benefit fi3ed at the ti%e the !lan is !urchased./ 1ctual cost !lans, also kno,n as traditional o!en-ended !lans, on the other hand, are !lans ,here the a%ount of the benefit is de!endent on the cost of such benefit or service at the ti%e of avail%ent.< Most %a-or co%!anies in the Pre-Need Industry such as College 1ssurance Plan 58C1P96 and Pacific Plans offered such traditional !lans. In *+##, Pacific Plans offered traditional %e%orial or life !lans ,here Pacific Plans guaranteed the !rovision of the agreed-u!on %e%orial service regardless of its actual costs at the ti%e of avail%ent. Si%ilarly, C1P first introduced traditional educational !lans in *+.$, guaranteeing the !ay%ent of tuition and other educational fees !revailing during the ti%e of delivery or %aturity. The nature of traditional o!en-ended !lans, ,hich !rotected the !lanholder against, ,hat at the ti%e ,as si%!ly real inflation and not artificially-induced or a %anufactured rise in the cost of the !roducts or services they re!resented, !roved to be a co%!elling %arket need. 1s a result, traditional or o!en-ended !lans co%!rised a significant share of the !roduct %i3 of !re-need co%!anies. Then the contagion called 7ncontrolled Tuition Increase 587TI96 turned this once !re%ier !roduct, the traditional o!en-ended education !lan, into the bane of the industry. Dn Se!te%ber **, *+./, B.P. Blg. /</, kno,n as the 8'ducation 1ct of *+./9 ,as !assed. 1s a conse uence, each !rivate school has the authority to deter%ine its rate of tuition fees, other school fees and charges.?
*

Mini%u% !aid-u! ca!italiBation is based on the ty!e and nu%ber of !lans being sold. Pre-need co%!anies selling traditional education !lans or selling three ty!es of !lans are re uired to have P*$$ %illion %ini%u% !aid-u! ca!ital. T,o-ty!e and single-ty!e !re-need co%!anies are re uired to have P@; %illion and P;$ %illion %ini%u% !aid-u! ca!ital, res!ectively.
/

1s defined in the 1ctuarial Society of the Phili!!ines 2uidelines to 1ctuarial Practice in Pre-Need. The Ne, PN (ules define Fi3ed Ealue Plans as 8Pre-need Plans ,hose benefits and costs are fi3ed and !re-deter%ined at the ince!tion or !urchase of the Plan.9
<

1s defined in the 1ctuarial Society of the Phili!!ines 2uidelines to 1ctuarial Practice in Pre-Need. The Ne, PN (ules define 1ctual Costs or Traditional Plans as 8Pre-need Plans ,herein the benefits or services at the ti%e they are due are guaranteed, regardless of any increase in cost fro% the originally assu%ed values since the date of issue of the Pre-need Plan.9
?

Section ?/ of B.P. Blg. /</ !rovides4 8Sec. ?/. Tuition and Other School Fees : 'ach !rivate school shall deter%ine its rate of tuition and other school fees or charges. The rates and charges ado!ted by schools !ursuant to this !rovision shall be collectible, and their a!!lication or use authoriBed, sub-ect to rules and regulations !ro%ulgated by the Ministry of 'ducation, Culture and S!orts.9

This ,as further reinforced by the !ro%ulgation of the *+.@ Constitution ,hich e%!hasiBed that the !o,er of the state over educational institutions is not one of control, but only reasonable su!ervision and regulation.; Dn 1!ril *;, *++?, )'CS Drder No. /$ S. *++? ,as issued ,hereby the )e!art%ent of 'ducation Culture and S!orts, the Co%%ission on Figher 'ducation 58CF')96 and the Technical 'ducation and Skills )evelo!%ent 1uthority 58T'S)196, ado!ted a !olicy of deregulation as regards the deter%ination of tuition and %iscellaneous fee increases of !rivate educational institutions. 1s a result, studies have sho,n that fro% *++$ to *++;, the national average for tuition fee increases a%ong !rivate higher education institutions are esti%ated at /@;0. In fact, %any schools have increased their tuition fees as high as si3teen !ercent 5*#06 to t,enty eight !ercent 5/.06 every year. Based on studies fro% the CF'), a continued tuition rate increase for the ne3t five years ,ould bring the national average tuition !er unit u! by Dne Thousand T,o Fundred Fifty Seven !ercent 5*,/;@06 by year /$*$ fro% *++$#. In contrast, historical trust fund yields of !re-need co%!anies have, in !eriods !rior to *++/ reached as high as *.0 but after *++/ have been in the range of only .0 to *$0. For the !ast fe, years, in fact, ,ith the onset of various !olitical and econo%ic crises ,ithin the country, the bulk of trust fund invest%ents of !re-need co%!anies have been li%ited to the lo, returns offered by govern%ent securities, in the range of ;0 to +0. This is visually re!resented in the diagra% belo,.

UTI

destroyed the business model

UTI overtook trust fund yields!

Table 2.0 Metro Manila Schools

;

Section ? 5*6, 1rticle GIE of the *+.@ Constitution !rovides4 8Sec. ?. 5*6 The State recogniBes the co%!le%entary roles of !ublic and !rivate institutions in the educational syste% and shall e3ercise reasonable su!ervision and regulation of all educational institutions.9

Studies fro% CF')

<

San Sebastian 5College6 2ross Price 5Ph!6 Total 1vail%ent 5Ph!6 Co%!ounded (eturn Cu%ulative (eturn *@,@*/ +?,<*$ *.0 ?</0 7niv. of Nueva Caceres 5College6 *@,*;@ #@,$$; */0 /+*0

Far 'astern 1teneo de Manila 7niversity 5Figh School6 5College6 *@,@*/ *@,@*/ /@<,;#< <??,;$$ </0 <;0 *,?+?0 *,.?;0 Non-Metro Manila Schools Sacred Feart Cebu 5College6 *@,*;@ .#,+?? *;0 ?$@0 1ngeles 7niversity 5College6 *@,*;@ *@#,@<# /#0 +<$0

2ross Price 5Ph!6 Total 1vail%ent 5Ph!6 Co%!ounded (eturn Cu%ulative (eturn

1s sho,n in Table /.$ above, (eturns on the 2ross Price of traditional or o!en-ended education !lans are ,ell beyond the average trust fund yields ca!able of being generated. 1lso a!!arent, des!ite having the sa%e 2ross Price for a traditional or o!en-ended education !lan, 7TI favors enrollees of e3clusive schools and !re-udices those fro% non-e3clusive schools ,ho end u! subsidiBing these higher avail%ents. Finally, 7TI erodes the value of the !lan benefits. Continued unbridled returns and ine uitable !ay-outs ,ill !revent future servicing of !lans and ,ill eventually affect servicing of fixed-value !lans as ,ell. Hhile the deregulation of tuition ca%e about in *+./, !re-need co%!anies ,ith traditional or o!en-ended education !lans began to feel the full effects of 7TI only in recent years as the avail%ent !eriod for the bulk of these traditional or o!en-ended !lans only started in the late "+$s u! to the !resent. In conclusion, the three devastating effects of 7TI are4 *6 unbridled returns on the traditional or o!en-ended !lans, /6 ine uitable !ay-outs, !articularly versus !lanholders ,ho utiliBe the !lans for lo,tuition schools and versus non-o!en-ended education !lans, in general, and= <6 loss of value in ter%s of !lan benefits. The Pre-Need Business Model for traditional o!en-ended education !lans ,as !re%ised on a fi3ed rate of increase in Tuition Fees@. Hith a safe %argin fro% its trust fund yields, !re-need co%!anies could ,ell cover the !ro%ised !lan benefits. Fo,ever, 7TI destroyed this business %odel, co%!ro%ising the !ositions of the !re-need co%!anies and their res!ective trust funds considering that such additional costs could not be !assed on to !lanholders. In su!!ort of the foregoing, the Phili!!ine Federation of Pre-Need Plan Co%!anies, Inc. 58PFPPCI96 declared in its !osition !a!er sub%itted to the Securities and '3change Co%%ission that, The indefinite availment of open-ended educational plans is not sustainable. Any liquidity assistance can only be available if those with open ended plans fix their liabilities.
@

*$0 !er annu%, inclusive of Miscellaneous and other 'nroll%ent Fees

Su!!ort for this !osition has, like,ise, been echoed by govern%ent and by the acade%e. This ,as %ade a!!arent at a Sy%!osiu% on the Pre-Need Industry held in Iuly /$$; at the 1sian Institute of Manage%ent ,ere !ro!osals ,ere set forth addressing the structural and regulatory issues that ,ere leading the industry into crisis.

2.

estricti!e Trust Fund ules

The Pre-Need Business Model ,as !re%ised, not only on a fi3ed rate of increase in Tuition Fees. in the case of traditional or o!en-ended education !lans, but also a safe %argin fro% trust fund yields to cover the !ro%ised !lan benefits for any and all !lans, ,hether traditional o!en-ended education, fi3ed-value education or fi3ed-value !ension !lans. Thus, a%ong the %a-or factors that brought on the Pre-Need Industry crisis are the restrictive trust fund rules and regulations. These restrictive rules s!ecified unreasonable li%itations on the invest%ents of the trust funds in light, not only of the runa,ay tuition fees under traditional o!en-ended !lans, but also the high yields re uired under fi3ed-value !lans for the% to be co%!etitive in the financial %arket!lace. Fistorically, the trust funds of !re-need co%!anies have been invested !ri%arily in govern%ent securities follo,ed by e uity and real estate. Ironically, ,hile the invest%ent li%its and criteria ,ere established to hel! ensure the delivery of the guaranteed benefits under the !lan contracts of !re-need co%!anies, the lo, returns !rovided by the instru%ents in the !ast ten years, es!ecially since the 1sian financial crisis, has in fact !revented the trust funds fro% !roviding the re uired yields to %eet !lan obligations. Invest%ent yields in the !ast ten years have been ,ell belo, the re uired levels to %eet !lan obligations of the Pre-Need Industry. Ti%e )e!osit rates, for e3a%!le, net of the /$0 ,ithholding ta3, have average belo, *$0 fro% *++/ to /$$;. >ike,ise, the average net rate of the <#?-day Treasury Bills has dro!!ed drastically since the 1sian financial crisis of *++@ fro% *?.?0 to #.#0 by end-/$$;. This deficiency in invest%ent or trust fund yields has co%!ro%ised not only the ability of the !re-need co%!anies to %eet the re uired reserve levels under the 1(> sche%e for both education and !ension trust funds but has also co%!ro%ised their ability to %eet i%!ending obligations for all currently availing !lans, ,hether traditional o!en-ended !lans, fi3ed-value education or fi3ed-value !ension !lans, ,ithout !utting its non-availing !lanholders in a severely disadvantaged !osition. Table *.$ belo, is a su%%ary of the li%its and criteria + governing the invest%ent of the trust fund.
Table 1.0 Investment Instruments *. Fi3ed Inco%e Instru%ents a6 2overn%ent Securities b6 SavingsAti%e de!osits and co%%on trust funds
.

Criteria

Allocation Not to be less than *$0 of the trust fund No li%its

Hith a co%%ercial bank ,ith recent satisfactory rating by the BSP

*$0 !er annu%, inclusive of Miscellaneous and other 'nroll%ent Fees

+

Source4 S'C, PN Ne, (ules

c6 Co%%ercial !a!er

)uly registered ,ith the S'C ,ith credit rating of 8*9 or 81aa9 by the P(1 or its e uivalent Profitable for the last < years and record of !aying loans of the trust fund. Secured by %ortgage u! to #$0 of a!!raised value= !ro!erty covered by Transfer Certificate of Title 5TCT6 and free of liens and encu%brances )uly registered ,ith the Co%%ission= invested only in fi3ed inco%e securities and blue chi! securities >i%ited to listed co%!anies on the local stock e3change= %ust be co%!anies ,ith actively traded stocks, financially stable, have good gro,th track record and declared dividends in the !ast < years Pro!erties located in strategic areas of cities and first class %unici!alities= Transfer Certificate of Title 5TCT6 free of lienAencu%brances= transferred to na%e of the trustee= recorded at ac uisition cost= to be a!!raised every three years by accredited a!!raiser= should recogniBe only #$0 of !ositive revaluation incre%ent and *$$0 of the negative revaluation incre%ent= incre%ent should not be used to cover the re uired %onthly contribution to the trust fund.

d6 )irect loans to cor!orations

Not to e3ceed *;0 of the total trust fund and not %ore than *$0 of any co%!any&s co%%ercial !a!er Not to e3ceed ;0 of the total trust fund and not %ore than *$0 granted to any cor!orate borro,er No li%its Not to e3ceed /;0 of the total trust fund and not %ore than *$0 of each issue Not to e3ceed /;0 of the total trust fund. 1ny real estate invest%ents e3ceeding /;0 should be leveled off to the !rescribed li%it by Iune <$, /$$/.

/. Mutual Funds <. ' uities

?. (eal 'state

To cite an e3a%!le, the Industry is only allo,ed to lend u! to ;0 of its trust fund !ortfolio to its !lanholders, unlike the Banking sector, ,hich also has fiduciary duties to its de!ositors, but ,hich can lend u! to *$$0 of de!osits against said !lace%ents. If !re-need co%!anies ,ere allo,ed to lend on a larger scale to their !lanholders, in this risk-less transaction, this could earn the trust funds yields e ual to or greater than the credit card business of <$0 to ?$0 !er annu%.

". #ctuarial

eser!e $ia%ility (# $)

Fro% *+## to *+@., no govern%ent agency regulated the Pre-Need Industry. In the absence of direct legislation covering the Pre-Need Industry, the Securities and '3change Co%%ission 58S'C96, in *+@., ,orking closely ,ith the industry, !ro%ulgated the 8(ules on (egistration and Sale of Pre-Need Plans, Pension Plans, >ife Plans and Si%ilar Contracts and Invest%ents9 and started to regulate the industry. Then in *+./, u!on the !assage of the (S1, ,hich included !re-need !lans in the definition of 8securities9, S'C -urisdiction over !re-need co%!anies and the !lans sold by the% ,as clearly %andated. The initial rules ,ere re!laced in *+.? by a 8(evised (ules on (egistration and Sale of PreNeed Plans, Pension Plans, >ife Plans and Si%ilar Contracts and Invest%ents9 and in *+.@ by 8Ne, (ules on the (egistration and Sale of Pre-Need Plans and Si%ilar Contracts and Invest%ents9 58PN (ules96. Subse uently, in /$$*, the S'C u!dated the rules ane, by issuing 8Ne, (ules on the (egistration and Sales of Pre-Need Plans under Section *# of the Securities (egulation Code9. The ne, rules consolidated the S'C&s various rules, circulars and ad%inistrative orders on !re-need and introduced changes ai%ed at i%!roving the regulation of the industry.

In /$$/, the S'C i%!le%ented the Pre-Need 7nifor% Chart of 1ccounts 58PN7C196 as a standard of accounting and re!orting finances and liabilities for !re-need co%!anies. It re uired that !reneed co%!anies should4 5i6 !rovide for 1ctuarial (eserve >iabilities 581(>96 that re!resent accrued net liabilities of the !re-need co%!any to its !lanholders= 5ii6 se!arately account for trust funds= and 5iii6 establish the liability accounts for the 'sti%ated Benefit Provision in Install%ent Contracts (eceivables and 7nrealiBed 2ross Inco%e in Install%ent Contracts (eceivables. It also re uires that, at all ti%es, the net asset value in the trust fund should not be less than the 1(>. In effect, under the PN7C1, !re-need educational and !ension !lans ,ere treated not as invest%ent contracts any%ore but as insurance contracts. The i%!le%enting guidelines for the 1ctuarial (eserve >iability 581(>96 sche%e detailed this change. In !articular, the S'C issued Circulars #, @ and . 5Standards for Ealuation of 1ctuarial (eserve >iabilities for Pre-Need Plans, (e uired Infor%ation to 1cco%!any the 1ctuarial (eserve Ealuation (e!ort of Pre-Need Co%!anies and (es!onsibilities of 1ctuaries in Pre-Need 1ctuarial (eserve Ealuation6 that i%!osed changes affecting trust fund distribution, defer%ent of co%%issions, re uiring the set-u! of insurance !re%iu% liability and stricter actuarial guidelines. Hith the i%!osition of Circulars #, @ and . in con-unction ,ith the i%!le%entation of the 1(> sche%e, !re-need co%!anies !reviously dee%ed to be financially healthy ,ere !erceived as insolvent overnight. To uote the !ertinent state%ents in the letter of the Phili!!ine Federation of Pre-Need Plan Co%!anies, Inc. to the S'C, dated Nove%ber *?, /$$;, ,hich is attached as a schedule to this (ehabilitation Plan4 8Jthe see%ing insolvency of co%!anies because of the i%!le%entation of the 1(> in con-unction ,ith circulars #, @ K . : ,ithout !ro!er consultation ,ith the Industry as ,ell as a transition !lan. Dvernight, co%!anies that have long %aturity to li uid ratios and are dee%ed financially healthy ,ere "!erceived& to be bankru!t.9 The co%!utation for the level of reserves or 1(> de!ends heavily on the trust fund yield assu%!tions as a !ercentage dro! in the yield assu%!tions results in a *$0 increase in the 1(>. More i%!ortantly, the nu%bers analysis under 1(> not only i%!acts !re-need co%!anies& !erceived solvency but also, in fact, has serious negative re!ercussions on !re-need co%!anies& balance sheets and inco%e state%ents as the increase in 1(>, as !art of convention, is booked as !art of e3!enses. 1s this nor%ally involves a%ounts in !eso %illions or billions, in %ost instances, this results in net losses for !re-need co%!anies. This is, in fact, ,hat ha!!ened 8overnight9, in the last fe, years since /$$/. If a historical ti%eline is traced back to sho, %ilestones, the years *++< to *++@ sa, the Industry e3!eriencing high gro,th ,ith revenues averaging of /$0 gro,th !er annu%, total assets gro,ing at an average of <$0 !er year and net !rofit averaging /.0 !er annu%. Dver P?Billion benefits ,ere !aid to over ?Million !lanholders and over P*$Billion in !re%iu%s ,ere collected annually. Fro% *++. to *+++, the nu%ber of !re-need co%!anies gre, to over .. ,ith the To! Ten co%!anies accounted for .$0 of Industry sales. Not only has the Industry been a %a-or !ro!onent nation,ide for %obiliBing savings, it has also been a !ri%e source of e%!loy%ent for over *.$,$$$ sales agents and over /$,$$$ e%!loyees all over the country. @

Moreover, the Industry has attracted significant foreign invest%ent. The years /$$$ to /$$< sa, the entry of a nu%ber of %ultinationals that i%%ediately beca%e to! !layers in the Industry4 Berkely 5in /$$$6, CM2 5in /$$*= bought by Manulife in /$$/6 and Sunlife 5in /$$$6. Fo,ever, beginning in /$$/, aside fro% the co%!etitive shakeout, because of the introduction of the ne, !re-need regulations and the 1(> sche%e, a nu%ber of ac uisitions, consolidations and closures occurred. Industry !layers contracted fro% +$ to ?;. In fact, Industry sales declined by /0 in /$$/ and by *<0 in /$$<. 1s a result, .$0 of Industry sales then ,ere accounted for by To! @ !re-need co%!anies. Dn to! of the ne, !re-need regulations and the 1(> sche%e, stricter i%!le%entation of the Trust Fund rules ,ere i%!osed, re uiring !re-need co%!anies to %ake %onthly de!osits vis-L-vis de!osits at the end-of-year, a !ractice that !reviously allo,ed co%!anies to %anage the seasonality of sales and collection efforts. By this ti%e, the industry had contracted further ,ith .$0 of Industry sales accounted for by only the To! # co%!anies. >ike,ise, the crisis had already further accelerated ,ith the situation of C1P. The !rogressively deteriorating industry situation not only brought ,ith it a host of technical and regulatory co%!liance issues a%ong the !re-need co%!anies, %ore seriously, it caused a severe crisis in confidence in the !lanholders and target %arket of the industry. In the financial service industry ,here the %ain 8currency9 for any co%!any to gain the business of its custo%ers is 8trust9, a crisis in confidence s!ells the death of the co%!any. 'ven if, in %any instances, the !roble%s involve !erce!tion issues such as the !erceived insolvency of !re-need co%!anies in light of the 1(> sche%e, to the custo%ers and %arket, 8!erce!tion9 is 8reality9. >ike the banking industry, ,here a bank run can severely da%age even the biggest banks, the crisis in confidence for the Pre-Need Industry s!ared and continues to s!are no co%!any. In fact, the reality of the erroneous a!!lication of the accounting syste% to !re-need co%!anies has been acce!ted by the Fouse of (e!resentatives ,ith the ado!tion of (esolution No. *$?+ dated $; )ece%ber /$$; that urged the S'C to sus!end the i%!le%entation of the controversial 1(> since it ,as !assed ,ithout consultations ,ith the !re-need sector, !articularly on the drafting of the ne, for%ula. Currently, ne,s!a!er re!orts already indicate !ossible ad-ust%ent of the a!!lication of the 1(> as Congress calls on the S'C 8to arrive at a ne, for%ula9 since, in a series of investigations, Congress 8has seen the disastrous results of a !olicy funda%entally unsound and tainted ,ith vested interests.9 *$

&. #sian Financial 'risis and Industry (eltdo)n

The 1sian financial crisis i%!acted negatively on the ,hole Financial Services Industry, !articularly the banking and invest%ent banking sub-sectors, resulting in a nu%ber of closures. The PreNeed Industry, as a sub-sector of the Financial Services Industry, of course, suffered as ,ell. Hith the fate of !re-need co%!anies already hanging in the balance due to 7TI, 1(> and restrictive trust fund rules, the 1sian financial crisis in *++@ !ushed the co%!anies closer to the !reci!ice. Because of the harsh business cli%ate and a stee!er dro! in yields, !re-need co%!anies began e3!eriencing trust fund deficiencies, eighty !ercent 5.$06 of ,hich ,ere re!orted to have been caused by avail%ents on traditional or o!en-ended education !lans.
*$

81(> not actual, !resent liabilities of C1P, says S'C9, The Phili!!ine Star . $# February /$$#

In res!onse, in /$$/, the S'C sus!ended the further sale of traditional or o!en-ended education !lans considering their inability to co!e ,ith tuition fee increases. The sus!ension ,as intended to be te%!orary, !ending an e3tensive revie, of the traditional or o!en-ended education !lan !roduct.** The sus!ension, in fact, has re%ained in force until today. Nevertheless, ,hile the sale of traditional o!en-ended education !lans had been sus!ended, this did not address the re!ercussions of !lans sold in !rior years in light of 7TI, restrictive trust fund rules, the 1(> sche%e and the 1sian financial crisis. There ,as a lack of legislative action A govern%ent su!!ort in light of the debilitating effects of these factors on the Industry. This is in contrast, for e3a%!le, to Ia!an, ,here their !arlia%ent issued an edict to its !re-need co%!anies to cut the guaranteed benefits of !lans in light of the do,nturn of the Ia!anese econo%y and financial %arkets. In /$$/, the Non-Traditional Securities and Instru%ents )e!art%ent 58NT)96 of the S'C also revie,ed the !erfor%ance of !re-need co%!anies and docu%ented a nu%ber of co%!anies ,ith trust fund deficiencies, the highest of ,hich, re!ortedly, ,as for C1P in the a%ount of T,o Billion Five Fundred Million Pesos 5P/,;$$,$$$,$$$.$$6. In the revie,, the NT) concluded that the trust fund deficiency of C1P resulted fro%4 5a6 the decline in %arket value of its invest%ents= 5b6 lo, invest%ent yields= and 5c6 the high cost of education. */ Hith the unrelenting effects of 7TI, 1(> and the restrictive trust fund rules, the Industry Meltdo,n 5)o%ino 'ffect6 had already begun. By %id-/$$?, College 1ssurance Plan, Inc. 58C1P96, ,hich used to be the largest !re-need co%!any, ,as already in dire straits. By 1ugust, its )ealers& >icense ,as not rene,ed by the S'C. In 1!ril /$$;, Pacific Plans, Inc., a !ioneer ,hich started o!erations in the "#$s and !reviously ranked in the To! Five of the Industry, filed for cor!orate rehabilitation, causing an even bigger crisis ,ith heightened negative %edia e3!osure. Hithin a fe, %onths, Platinu% Plans, Inc., also !reviously a To! Ten-ranking !re-need co%!any, filed for cor!orate rehabilitation. 1nd in Se!te%ber /$$;, C1P filed for cor!orate rehabilitation. By the end of /$$;, the cor!orate rehabilitation !lans of Pacific Plans, Inc. and Platinu% Plans, Inc. had been given a!!roval by the (ehabilitation Court. Not unlike the Tsuna%i catastro!he, the i%!le%entation of the restrictive trust fund rules and 1(> sche%e in /$$/, cou!led ,ith 7TI and the 1sian financial crisis, has "ri!!le& or "do%ino& effects on the Industry !artici!ants that return ,ith greater force as the econo%y continues to deteriorate.

**

8S'C te%!orarily sus!ends sale of ne, education !lans,9 Business World. <$ Iuly /$$/

*/

8S'C evaluating C1P trust fund enhance%ent sche%e9 by Cathy (ose 1. 2arcia ,ith Cecille '. Ma!, Business World. <$ Iuly /$$/