PPI collapse dashes dreams of 245,000 policyholders

(First of three parts)

“It was just too much to bear,” said Edna Roxas, a 45-year-old mother of two, upon hearing the bad news that Prudentialife Plans Inc. (PPI) had collapsed.

Roxas, who worked as a midwife in Libya from 1991 to 2001 so she could send her daughter and son to college, said she had spent nearly P400,000 over a five-year period during her overseas employment to pay premiums for two educational plans she had bought for them.

“I did not mind going to the Middle East and working in long-hour shifts because I wanted to support my children and make sure they go to college,” Roxas told the Inquirer. Her job, she recalled, would often require her to work 24 hours.

What she thought was a valuable investment proved to be good in helping pay the tuition of her daughter only for the first year in college. Her son, who would be in college next year, will never benefit from the educational plan.

Minerva Lubong, 61, who owns an eatery in Nueva Vizcaya province, expressed shock upon learning that PPI was in liquidation. She helped her husband, Abraham, who works as a farmer, pay for a pension plan bought from the preneed firm.

The couple had banked on the preneed policy to help support them in old age.

“We were told that buying a pension plan was a good investment. It turned out we lost money because of what happened to PPI. It is difficult to accept that we just lost our money that way,” Minerva said in Filipino.

The Lubongs paid a total of P84,900 from 2002 to 2006 as premiums for the pension plan, which was supposed to have matured last year. Under the preneed policy, which was in her husband’s name, they were supposed to get P100,000 in benefits last year and P100,000 in 2017.

245,000 plan holders

Roxas and Lubong were just two of some 245,000 plan holders who suffered losses from the collapse of PPI.

Under the terms of liquidation of the company, policyholders will be reimbursed the amount they spent for premiums but with huge cuts.

According to the Insurance Commission (IC), payments shall be done in two installments. The first covers the recovery of PPI’s liquid assets (cash), while the second covers nonliquid assets, mainly investments in securities.

Under the first installment, holders of PPI education plans shall get back only 19 percent of their total contributions; holders of pension plans, 40 percent; and those of memorial plans, 80 percent.

This means that an educational plan holder who paid P100,000 in premiums but did not receive benefits before PPI’s collapse will recover only P19,000.

A pension plan holder, who paid the same amount and did not receive benefits, ought to get P40,000, and a memorial plan holder, P80,000.

‘Accumulation method’

The IC said the computation used the “accumulation method,” or the amount to be recovered was based on one’s total contributions less the amount of benefits already received.

Based on what was left of PPI’s trust fund, the total amounts to be distributed among plan holders under the first installment are the following: P315 million for educational plan holders, P2.3 billion for memorial plan holders, and P2.6 billion for pension plan holders.

The distribution of the checks to plan holders started on Aug. 15, the IC said.

As for the second installment, the regulator said the amounts to be given to education, memorial and pension plan holders had yet to be determined. There was no schedule yet for the distribution of checks.

It said the amounts would depend on the funds to be generated from the sale of the nonliquid assets, such as real estate, which has been estimated at P3.085 billion. Proceeds from the sale of the assets, however, may be lower as these will depend on the maximum amounts buyers are willing to pay.

Alba, P14B deficiency

With no sufficient resources to pay for its liabilities, PPI, which is owned by the Alba family, stopped servicing claims in February 2012. With rehabilitation proposals failing to materialize, the IC ordered the liquidation of the company two months ago.

The IC placed PPI’s trust fund deficiency at P14 billion (preneed companies are required to set aside portions of premiums collected from plan holders in a trust fund to ensure that these can pay future claims).

It said that based on PPI’s liabilities, its trust fund should be about P21 billion to sufficiently cover its obligations to plan holders and creditors. However, the actual value of the trust fund by the time of its collapse stood at only about P7 billion, it said.

Based on its 2011 financial statement, a copy of which was obtained by the Inquirer, the total assets of PPI amounted to P9.25 billion compared with the P21.62 billion in liabilities. The value of the assets includes the P7.26 billion in trust fund.

Reasons for failure

Property and equipment accounted for P258 million of total assets. PPI has a building on Gamboa Street in Makati City.

Other assets include cash, financial investments and loan receivables.

Several reasons were cited for PPI’s failure. One was the significant increases in tuition that went beyond its actuarial assumptions. Because of a 1992 law deregulating the education sector, schools are allowed to raise tuition.

Another was the global economic crisis that began in 2008, which pushed interest rates to record lows. This development was blamed for reducing yields in PPI’s securities investments to levels below assumptions.

Regulations disallowing certain types of investments, such as in stocks of unlisted companies, were also attributed as these allegedly forced the company to divest itself of some investments—even at a loss.

Some plan holders who do not view the reasons as the entire truth clamor for an investigation to determine whether PPI mishandled their money.

Rolly Ocampo, spokesman of a group called Prudentialife Warriors, said it would be unfair if the preneed company would not be held accountable for the losses that policyholders were forced to bear.

“We want authorities to conduct a formal investigation of what happened to it and to look into irregularities related to the liquidation,” Ocampo told the Inquirer.

“Under the terms of the liquidation, policyholders will be able to recover only a small amount of their own money, and that is not fair,” he added.

Government audit

Insurance Commissioner Emmanuel Dooc said the agency’s audit of PPI looked into the reasons behind the firm’s failure. The results were being finalized and would be available soon, he said.

“We engaged foreign auditors to look into the case of PPI. The findings will be reviewed by our lawyers,” Dooc said.

He said the commission’s legal team would determine, based on the auditors’ findings, whether cases should be filed against PPI and the Alba family.

Chris Rafal, media relations officer and head of the IC public assistance department, said an investigation of a regulated entity that collapsed was a standard operating procedure.

It would reveal whether the collapse of PPI involved fraud or was entirely due to poor investment decisions, weak business model and factors beyond the company’s control, Rafal said.

“If the company’s failure was due to reasons other than wrong business judgment and if there is evidence of intent to misappropriate funds, then concerned people will be held liable,” he said.

(To be continued Tuesday)