Pre-need firms given more options for investing funds
THE Insurance Commission (IC) gave pre-need companies more options on where to invest their trust funds.
Insurance Commissioner Dennis B. Funa signed Circular Letter 2022-37, amending the guidelines on allowable investments for preneed trust funds.
The updated list of allowable investment outlets for pre-need companies includes: Real Estate Investments Trust and Exchange Traded Funds (Reits and ETFS); mutual funds and Unit Investment Trust Funds (UTFS); and, other equity securities and other debt securities that were not included in the list of investment options listed under Section 34 of the Pre-need Code (Republic Act 9829).
Funa said the circular dated July 18 was issued after the IC studied previous issuances and rules on the allowable investments of pre-need companies “to align and make them consistent with current market practices.”
The pre-need industry plays a “vital role in the financial and social security of the country,” the IC said.
The regulator also emphasized that the Pre-need Code also requires that the trust fund “must at all times be sufficient to cover the required pre-need reserve.” Likewise, R A 9829 mandates that a trust fund per preneed plan shall be established to ensure the delivery of the guaranteed benefits and services provided under a pre-need plan contract.
The IC also specified minimum conditions to be met for these additional allowable investments. However, it also said investments listed in Section 34 of the Pre-need Code, as well as those included in the new circular that do not meet the minimum prescribed conditions, shall still be allowed as investments. But the total amount should not exceed five percent of the trust fund at acquisition cost after the consideration of limitations under the rules.
The basis for the computation of the limits of the instruments or investments shall be the acquisition cost of the investments.
The percentage of limit for “Other Allowable Investments” shall be the residual of the sum of the following, less 100 percent: the sum of the actual allocation for government securities; and, the sum of the actual allocations on investments under Section 34 (a) to (c) of the Code, subject to the maximum limits of the Code and any other pertinent Circular Letters issued.
No deposit or investments in any single entity allocated to “Other Allowable Investments” shall exceed 15 percent of the total value of the trust fund, the IC said.
Earlier, the regulator also increased the investment threshold allocation of pre-need companies by 2 percent each for the following: equities (now at 34 percent); long-term commercial papers (19 percent); direct loans to planholders (14 percent); real estate (14 percent); and, direct loans to corporations (9 percent).
The pre-need industry’s investment in trust funds grew by 8.95 percent in 2021 to P97.2 billion from P89.2 billion in the previous year. The industry’s total premium income also climbed by 11.06 percent year-onyear to P19.76 billion in 2021 from P17.79 billion in 2020 as it sold more plans during the period.
Under the Pre-need Code, companies engaged in pre-need business are required to establish a trust fund to pay for the cost of benefits and services, termination values payable to planholders and other costs necessary to ensure the delivery of benefits or services to planholders as provided for in the contracts.
All investments of preneed companies are limited to fixed income instruments, equities and real estate. The limits were put in place to ensure the liquidity of the trust fund and, thereby, guaranteeing the delivery of benefits provided under the contract and to obtain sufficient capital growth to meet the growing actuarial reserve liabilities of a preneed company.
The failure of a preneed company to cover any deficiency in the trust fund may result in the imposition of a penalty, in addition to other sanctions determined by the IC. These include the suspension or revocation of the license of a preneed company. The IC can also place such company under conservatorship.