Prudentialife is bankrupt, seeks rehab

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The troubled pre-need firm is allowed not to pay obligations to clients, creditors and suppliers as it tries to finalize a rehabilitation plan

MANILA, Philippines – The Insurance Commission has issued a stay order on Prudentialife Plans Inc., a pre-need firm in “serious financial trouble,” stopping the payment of obligations to clients, creditors and suppliers.

According to statements separately posted on the websites of Prudentialife and the Insurance Commission, the stay order was effective February 6, affecting, among others, pre-need clients totalling 306,905 as of September 2011.  

This essentially means that claims of pre-need clients, creditors and suppliers will not be honored until a new corporate rehabilitation plan is approved. Prudentialife submitted a new version of its plan to get back on its feet last December 2011, and consulations with various stakeholders are scheduled for various dates in  February and March.

The firm is not pursuing a liquidation, or the process of selling the company’s assets to pay creditors and plan holders, that was initially proposed by the assigned conservator.

Instead, it is seeking corporate rehabilitation, which refers to a restructuring plan in an attempt to stir the company back to profitability.

Prudentialife admitted that it been in financial trouble since 2001. It sought to increase its capital base to meet maturing claims, but in 2009, the Securities and Exchange Commission, which was the previous regulator of pre-need firms, disallowed it to sell new plans, cutting off sources of new cash flow to pay for old claims.

The company still continued servicing obligations to remaining, but far reduced, number of plan holders, but it was downhill since.

As of September 2011, its deficit, or the difference between its trust fund assets and liabilities, has ballooned to P11.75 billion. Prudentialife said they lost P700,000 from end-2010.

Its trust fund can only service tuition fees of or medical obligations to its plan holders up to 2016 if the financial hemorrhaging is not contained. 

“[Prudentialife] is now in a serious financial turmoil,” conservator Rosario Bernaldo told Insurance Commission wrote in her December 8, 2010 letter to the Insurance Commission.

Prudentialife has been haunted by the thunderous fall of bigger pre-need firms, including Sobrepena-led College Assurance Plan, Yuchengco-led Pacific Plans Inc., as well as the Legacy Group, whose rural banks, financing firms and pre-need units went belly up after the Bangko Sentral ng Pilipinas and the SEC declared them bankrupt and filed suits against them.

In general, the pre-need industry, which sells financial products that hope to meet future educational, medical and funeral needs of clients, has been hit by

  • guaranteed high benefits set when the actuarial assumptions were still favorable
  • the global economic crisis in 2007 and 2008 that increased uncertainties in the financial markets, and
  • the changing regulatory environment in the Philippines following the collapse of major pre-need firms. Specific changes include the more prudent computation of required capital to support future payments to clients and the transfer of oversight from the SEC to the Insurance Commission.

Meantime, Filipino-owned insurance firm Philippine Prudential Life Insurance Co. Inc. stressed that it is different from and not connected with Prudentialife Plans Inc. –

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