Regulator cites insurer for confidence-building pre-need reserve boost

The Insurance Commission (IC) has lauded PhilPlans First Inc. (PhilPlans) for adopting the lowest discount rate set forth by the IC for preneed companies well ahead of schedule.

According to Insurance Commissioner Dennis B. Funa, PhilPlans has implemented ahead of schedule a discount rate under Circular Letter 23-2012 on the valuation of transitory preneed reserves.

“PhilPlans decided to use the 6-percent rate as early as this year since, based on the records they submitted, the company has more than enough reserves to absorb the increase in additional reserve requirement. Thus, PhilPlans is willing to take a one-time hit and adjust the discount rate essentially to 6 percent,” Funa said.

Under the circular, the IC provided for a regulatory leeway in the computation of preneed reserves for the old basket of plans previously approved by the Securities and Exchange Commission (SEC). The IC provided for a graduated interest rate for the year 2012 onward to be used in the computation of preneed reserves for the old basket of plans.

“While the early adoption of this conservative approach to valuation has reduced the surplus assets of PhilPlans, according to the company, their assets continue to be healthy, and the surplus now stands at P4.4 billion at a discount-interest rate of 6 percent. The actuarial liability of PhilPlans today is P33.2 billion, while its assets stand at P 37.6 billion,” he said.

Preneed reserves assure the investing public there will be adequate funds to pay for all future maturities and benefits.

The discount-interest rate used in valuing preneed reserves shall not exceed the low end of the attainable rates as certified by the trustee and the following rates: 8 percent for years 2012 to 2016; 7.25 percent for year 2017; 6.5 percent for year 2018; and 6 percent for years 2019 and onward.

According to the IC, PhilPlans board of directors approved the use of the discount rate of 6 percent in valuing its reserves.

“The preneed industry has in place several regulations that will ensure the stability of the industry. These regulations will help the industry grow and expand and ensures that they offer viable financial products to its clients,” he said.

Under the Pre-Need Code, preneed companies are required to set aside a certain amount in their trust fund to pay for future liabilities and used mainly for this purpose.

“With a business based on trust and stability and the assurance that it will be there to pay benefits as they arise, preneed organizations that set aside more give the buying public better assurance that it will be there to settle its obligations. This is why the decision to value its business at 6 percent gives the public the assurance that PhilPlans will be there to serve its plan holders in the future,” Funa said.