The pandemic has virtually crippled nearly every business operation in the Philippines. It has restricted the mobility of the people, shut down many establishments and took away the jobs of millions of Filipino workers.
Some companies had to lay off a chunk of their employees to preserve their operation, while others closed down part of their functions to tide them over until the virus blows over.
The financial sector is also not exempt from the damage wreaked by COVID-19 on the economy. Big banks had to set aside huge loan-loss provisions that ate into their profits, after many clients took a hit with the huge drop in consumer demand. Pre-need companies, meanwhile, are shell-shocked to this day as investments in several financial instruments failed to provide the anticipated revenue streams.
PhilPlans First Inc. is one pre-need company that has taken some painful decisions to preserve operations and keep the trust of clients. Companies in this business usually invest in various instruments, such as stocks, bonds and real estate knowing their values appreciate over time. Proceeds of these investments would then go to plan holders in the form of their benefit claims. But as in any businesses, investments have their risks, depending on the vagaries of the markets. The COVID-19 pandemic is one huge risk that no one has prepared for.
PhilPlans, like all companies, never saw it coming, although it is one of the country’s biggest pre-need companies and the only one that sells education, pension and memorial plans at the same time. It is among the leaders in each category.
PhilPlans as of end-2018 had a capitalization of P700 million, more than five times the requirement of the Insurance Commission. It had a trust fund of P31.8 billion and paid over P35 billion (P4.3 billion in 2018) to over 500,000 plan holders since its establishment in 1989. COVID-19 quickly altered the company’s financial landscape.
“The pandemic,” says PhilPlans executive vice president Jimmy Dizon, “is a once-in-a-generation event that no one could have foreseen or expected. Its scale and magnitude is something we have not seen in the past century. The effects were quick and devastating to the health of the people, the economy and the financial markets (both the equity and fixed income markets).”
The Philippine Stock exchange Index, Dizon recalls, was down 13.15 percent year-to-date at the end of February, 19.15 percent on March 10, 2020 and 31.91 percent YTD on March 31, 2020. “Even the fixed income market was not spared. As of March 31, 2020, the fixed income market was down 0.5 percent YTD. [PhilPlans’] equity investments have lost values and so also have our investments in fixed instruments. Our real estate investment has also lost value and sales have slowed down. Our sales of products have also suffered,” says Dizon.
PhilPlans had to adjust, bounce back and come up with a win-win solution, even if it entailed making painful decisions, such as branch closures. Saving the company’s Trust Fund was paramount because it directly concerned serving the needs of plan holders.
“PhilPlans correctly anticipated that there will be a surge on the demand for alternative sources of funds to meet the basic needs of the family of the plan holders. The cost of healthcare, business closures, job layoffs, shortages of basic commodities, imposition of quarantines and the financial impact of the pandemic made us keenly aware of our responsibilities to provide resources for our plan holders. The answer: create Cash Programs and make them available to the plan holders as an alternative source of funds,” says Dizon.
“Witnessing everything happening at a fast pace and concerned about further depression of values, we decided to take the extraordinary step of safeguarding the portfolio of the Trust Fund investments for the benefit of all plan holders by temporarily deferring the payments of maturities for this year,” explains Dizon.
“This deferment, as provided for in the fortuitous event provision of the plan, will enable us to payout the maturities of all plan holders in a more orderly manner–to which the Insurance Commission had agreed to. Had we not taken action to protect the interest and welfare of ALL our plan holders, we would have had to sell down the assets of the trust fund at distressed/fire sale prices to the detriment of all the other plan holders. In this scenario, the portfolio of assets would have been depleted and our ability to service future maturities would have been compromised,” he said.
PhilPlans has sensed that the public will prioritize the basic needs of their family than buy a new plan. Thus, it closed almost all branches nationwide and retrenched a big portion of manpower to save on operating expenses. The decision is aimed at bringing down costs and providing more financial resources to plan holders.
PhilPlans has vowed to bounce back. It stressed that the government, specifically the IC, should provide assistance and offer some form of relief to all the industries under its jurisdiction, including the pre-need industry, similar to the move of the Bangko Sentral ng Pilipinas to freeze interest rates on bank loans during these tough times. The pre-need industry deserves the break—it contributes greatly to capital formation and market development.
E-mail: rayenano@yahoo.com or extrastory2000@gmail.com