The Insurance Commission (IC) is considering to place troubled pre-need firm Provident Plans International Corp. under rehabilitation unless it shows effort to improve its finances.
The IC said in a statement that it is “inclined to place” the capital “impaired” pre-need firm Provident Plans under conservatorship to protect the interests of its 38,000 plan holders if no clear improvements are seen in its financial condition by mid-June.
Provident Plans is among the companies that the IC has found to be financially deficient after the regulation of the pre-need industry was placed under the Commission in 2010 under Republic Act 9829. Pre-need firms were previously under the supervision of the Securities and Exchange Commission (SEC).
In a report to Finance Secretary Carlos Dominguez III, Insurance Commissioner Dennis Funa said that while Provident Plans has manifested before the IC in February and March this year that it has a “white knight” investor to cover up its capital impairment and trust fund deficiencies, it has yet to receive any concrete plan or Letter of Intent from this supposed investor.
“Thus, this Commission has ordered Provident Plans to submit a concrete plan and letter of intent from its proposed investor or to cover up its capital impairment and trust fund deficiencies within sixty (60) days from receipt of the directive (dated April 12, 2017) or until June 17, 2017. Otherwise, this Commission will issue a Cease and Desist Order and place the company under conservatorship,” Funa said in his report to Dominguez.
Provident Plans has three product lines focused on life/memorial plans, education plans and pension plans, but 70 percent of its clientele are life/memorial policy holders.
In his report, Funa cited four circumstances that led the IC to consider placing Provident Plans under conservatorship. These are: Provident Plans’ financial woes were already existing before the enactment of the Pre-Need Code and the transfer of supervision of pre-need companies to the IC; the primary cause of its capital impairment and trust fund deficiency is the unrecoverable investment with its previous trustee bank, the Export and Industry (EIB), and the neglect by its new trustee bank, the United Coconut Planters Bank (UCPB), in protecting the trust fund; the IC has already given sufficient time and opportunity for the company to infuse cash and/or additional assets to address its financial problems, which it had failed to do; and the IC needs to protect the interest of Provident Plans’ policy holders as it cannot allow the company to continue to operate under its present condition.
After the pre-need sector was placed under the regulation of the IC seven years ago, Provident Plans was found to be capital impaired when its books were examined in 2011.
The IC’s examination showed the company had a capital impairment of P316.33 million, a liquidity reserve deficiency of P78.54 million and a trust fund deficiency of P263.46 million.
The primary reasons behind these deficiencies was the “disallowance of the unrecoverable/unqualified trust fund investment made by EIB as a trustee bank of Provident Plans, in its own bank in the form of time deposits in 2005,” said Funa in his report.
That year, EIB invested Provident Plans’ trust funds in a seven-year “double-your-money” time deposit. But in December 2008, Provident Plans’ Investment Group recommended the withdrawal of the trust fund deposits because of the following: the resignation of key officers of EIB’s trust department; EIB’s 2006 and 2007 audited financial statements showed the bank incurred losses of P2.7 billion; and the suspension of EIB from stock trading.
EIB was ordered closed and placed under receivership by the BSP in 2012 over its failure to meet its maturing obligations, insufficient realizable assets and its inability to continue business without inflicting losses on its depositors and creditors, Funa said.
Funa said Provident Plans told the IC that it has regularly met with its new trustee bank—UCPB—but the latter apparently did not do anything to protect the trust fund investment of the pre-need firm in EIB.
Provident Plans submitted a five-year capital buildup program to the IC in January 2014 when the commission was still under the leadership of Emmanuel Dooc, who, however, found the plan “not beneficial” to plan holders.
Dooc had ordered Provident Plans to submit a three-year program instead with an initial capital infusion of P75 million, to which the company was able to comply with in the first year. But it has since failed to do so for the following years of 2015 and 2016.
Funa took over as IC commissioner in December last year following Dooc’s appointment as president and CEO of the Social Security System.
A December 2016 assessment made by the IC showed a much higher capital impairment of P340.61 million for Provident Plans and trust fund deficiencies of P284 million, Funa said in his report.
A copy of Funa’s report to Dominguez was also sent to BSP Governor Amando Tetangco Jr and Finance Undersecretary for Legal Affairs Bayani Agabin.
UCPB, in a statement, however, said “as Provident Plan’s trustee bank from 1989 until 2014 UCPB had never been negligent in protecting their trust fund.”
“As mentioned in the recent news report, the primary reason behind Provident Plan’s current status was the ‘disallowance of the unrecoverable/unqualified trust fund investment made by Export and Industry Bank, as a trustee bank of Provident Plans, in its own bank in the form of time deposits in 2005,’” it added.
In 2009 Provident Plans decided to terminate its trust agreement with EIB and subsequently transferred the EIB time deposits to UCPB.
UCP said at the time it was transferred to UCPB, the EIB time deposits were considered as an allowable investment under the SEC guidelines and IC regulations. EIB was eventually shuttered by the BSP in 2012.
“As its trustee bank, UCPB had fulfilled all its obligations in the Trust Agreement approved by Provident Plans and complied with all the pertinent regulations of the Insurance Commission,” it added.