Deputy Speaker and Surigao del Sur 2nd district Rep. Johnny Pimentel says there's a need for the Insurance Commission (IC) to assess the liquidity of all licensed pre-need corporations.
This, after the House leader learned that at least one pre-need provider has deferred by 75 days the distribution of a previously scheduled benefit payment. In justifying the holdup, the unnamed pre-need firm implied that it wants to avoid having to liquidate certain assets at a huge loss due to their depressed values.
“Our worry is that once a pre-need provider starts delaying a previously timed benefit payment, all subsequent periodic benefit payments might also be pushed back accordingly,” said Pimentel, who acknowledged the plunge in asset values due to the COVID-19 pandemic.
Pimentel reminded all pre-need entities that under Section 37 of the Pre-need Code of 2009, they are required “to maintain at all times a liquidity reserve” equal to at least 15 percent of their trust funds, but in no case less than 125 percent of all benefits they are expected to pay the following year.
“This rule means that if a pre-need provider has P100 million in timed benefit obligations this year, then as early as 2019, it should have already set aside at least P125 million in cash or cash equivalent investments. This way, the prompt distribution of all planholder benefits this year is assured,” he said.
“In any case, we want the IC – the mandated supervisor and regulator of the pre-need industry – to subject all licensees to a stress test,” Pimentel said.
A stress test is an analysis that's meant to verify a financial institution’s ability to cope with an economic downturn.
Figures from the IC showed that the pre-need industry had a combined investment of P118 billion in trust funds as of December 31, 2019, or less than 10 weeks before the World Health Organization announced the pandemic.