Wednesday, September 21, 2005

Bitter Pill

For pre-need plan holders, a bitter pill to swallow
Daxim L. Lucas and Elizabeth L. Sanchez
Inquirer News Service

THE SNOWBALLING troubles of the pre-need industry have plan holders worried about their hard-earned investments.

Many are concerned if the cure being prescribed for the ailing 30-year-old industry can still save it. More importantly, they worry if they can still get their money back.

This year alone, three major pre-need firms have taken the route towards regulator-assisted rehabilitation -- Pacific Plans Inc., Platinum Plans Philippines, and recently, College Assurance Plans Philippines Inc. (CAP).

Pacific Plans asked the Regional Trial Court in Makati City to allow it to suspend payment and go through rehabilitation after running out of cash to service future claims. Platinum also asked the court to be allowed to keep its business running since it has plans to branch out into related fields like marketing.

Both firms face stiff opposition from plan holders who believe that company officials are trying to dodge their commitments to clients -- a charge the companies deny.

For the pre-need firms, survival comes at a high price and it is becoming even doubly difficult to convince the Securities and Exchange Commission (SEC) about the viability of their plans to stay afloat.

Clutching at straws

What will make a rehabilitation plan work?

SEC commission secretary Gerard Lukban said the biggest consideration is the infusion of new capital into a pre-need company.

"When a company goes to court and asks for this relief, the court will have to decide whether this company is entitled to it," Lukban said. "What they will consider is solvency. Is this company worth salvaging?"

Lukban stressed that the SEC was not out to kill the pre-need industry, contrary to claims of the troubled firms that regulators keep shooting down rehabilitation proposals in court.

"The big factor there is the infusion of new capital or they could study venturing into something more profitable," Lukban said. "The SEC also has to be convinced that the money is coming in. Every company in trouble deserves to be rehabilitated but their efforts to seriously implement that rehabilitation is the key."

And convincing skeptical regulators and an increasingly incredulous public about their viability seems to be the biggest liability of some pre-need firms like CAP, at present.

No less than Senator Manuel Roxas II, chairman of the Senate trade and commerce committee, opposes CAP's bid for rehabilitation.

"Obviously, CAP has been engaged in a litany of lies and had been fooling the regulators and the people all along," said the lawmaker, who is spearheading moves to impose tighter regulations on the industry. "SEC was correct in suspending CAP's license to sell. If CAP was allowed to continue selling plans, then more families could have been fooled."

Roxas pointed out that CAP had in the past paraded several names of supposed prospective investors, among them Green Circle Properties & Resources Inc., Green Square Properties Corp., First American Investment LLC, and International Global Capital Holdings AG.

"Up to now, not a single centavo was infused in CAP," Roxas said in a statement. "Their trust fund is down to P4.71 billion from P8.5 billion in 2003."

Bitter pill

No matter what road to recovery the pre-need industry and their clients decide to take, the solution will definitely hurt everyone concerned.

Holders of open-ended educational plans are faced with a dilemma: Should they continue paying their premiums in the hope that the company will honor its commitments, or should they stop paying altogether and stand to recover only a portion of their policy value, or even risk losing everything they've paid through the years?

SEC assistant director Nonilonia Ambat, who oversees the pre-need industry, said that on the average, plan holders can recover 50 percent of what they paid when they choose to terminate their plan benefits -- but only if the policies have been fully paid.

Clients whose policies are only being paid for the first or second year are not entitled to recover any portion of their investments, Ambat said, explaining that terminating the policy at such an early stage will be a desperate move.

More realistically, she said, plan holders must be ready to swallow the bitter pill.

"Pre-need companies should convince plan holders to agree to convert to fixed value benefits," Ambat said. "If they need to beg the plan holder to agree, they should. The public will surely take the hit."

The SEC official's advice assumes that a pre-need company still has enough assets to cover the termination values of policyholders' plans. This may not always be the case as some firms may not only be illiquid, but bankrupt.

For actuaries like Isagani de Castro Sr., however, clients of some troubled pre-need firms are better off cutting their losses and starting from scratch.

"For clients of some firms, I would advise them to just stop paying," he said, adding that paying premium payments to a bankrupt pre-need firm is like throwing good money away.

"For some companies that are not that deep in trouble, like Pacific Plans, there is still hope that clients can recover their principal investment plus a small interest, if they accept the proposed rehabilitation plan," De Castro said. "But they should already forget about receiving the full benefits."

Wanted: Strong regulator

The Philippine Federation of Pre-Need Plan Companies believes, meanwhile, that open-ended plans should have a benefits ceiling.

But more than putting a cap on the amount to be paid to plan holders, the pre-need business model can still work and stay alive under a fixed-value setup, said federation president Juan Miguel Madrigal Vazquez.

"The pre-need industry remains viable because they serve a need," Vazquez said in an e-mailed note to the Inquirer. "The challenge is for the companies to serve those needs properly. People mistake the open-ended plan for the whole industry when it is not."

Vasquez also said that the problems faced by some of the industry's biggest players, like CAP and Pacific Plans, happened before 1994 -- way before the SEC was given resources to regulate the industry, as it has done since the Securities Regulation Code was passed in 2000.

"The law should create a strong regulator, empowered and accountable, with resources to implement this vision prior to, and after, any problem that would arise," he said. "The law should provide proactive protection and post protection or penalties to protect plan holders."

Roxas is hopeful that the pre-need bill pending in Congress will address these concerns, and more.

He explained that the law will specify a uniform accounting system which all players must adhere to, set prudent measures to protect trust funds from abuse and misuse, and require pre-need policies to be insured through a similar system used in the insurance industry.

As such, the pre-need industry will also be transferred under the ambit of the Insurance Commission, which will likely have more success in regulating quasi-insurance products.

Roxas admits, however, that his proposed solution is prospective, rather than retroactive.

While future buyers of pre-need policies will enjoy greater protection, existing clients will likely be left holding the bag, unless they can convince the courts to liquidate the assets of troubled firms in their favor.

On this point, both Roxas and De Castro agree that clients should pool their resources and file a class action suit against erring firms.

"The legal route is the only route," De Castro said, given the state of the industry, where several pre-need firms are on the verge of bankruptcy.

Having been a consultant for several insurance and pre-need firms in the past, De Castro predicts more pain in the coming months and years for all players in the industry—from the clients to the companies, even the regulators.

"It will be very difficult," De Castro warns.

PLDT's Dream

PLDT buying Dream Satellite; price set at $22M
Clarissa S. Batino
Inquirer News Service

PHILIPPINE Long Distance Telephone Co. (PLDT) is buying Philippine Multi-Media System Inc., operator of Dream Satellite TV, from Antonio Cojuangco for $22 million, or about P1.23 billion, Inquirer sources said.

The sources said Cojuangco, former controlling shareholder and president of PLDT, had accepted the PLDT offer because he needs the money to support his other investments, especially television company Associated Broadcasting Corp., which operates Channel 5.

"Both parties have agreed on the valuation," a source said. "It is just a matter of preparing the documents and affixing their signatures."

Another source said Cojuangco's group had agreed to a much lower price than it had originally asked, after PLDT agreed to absorb the debts of Philippine Multi-Media System.

Cojuangco's asking price was $56 million, said an informed source. PLDT offered $25 million, and later $22 million after factoring in the debts, mainly of Dream Satellite, that would be absorbed.

PLDT president Napoleon Nazareno said they were "still in the final stages of negotiations." The deal was not done yet, he said.

Philippine Multi-Media System holds a franchise to operate a direct-to-home programming service.

Acquisition of Dream Satellite would enable a joint venture between PLDT and America's largest direct-TV provider, Echostar Communications Inc., to finally take off.

PLDT and Echostar are planning to invest $85 million in pay TV operations in the Philippines through satellite receivers, not the traditional cable system that is prone to piracy and signal theft.

PLDT and Echostar have an existing venture under ePLDT. Parlance Systems Inc., a subsidiary of ePLDT, has been providing inbound and outbound call center services to subscribers of Echostar in the US since 2002.

Discussions on their investment in a direct broadcast satellite business started as early as 2000 but getting a franchise was one of the issues that impeded the venture.

Cesar Reyes, chairman and chief executive officer of the Philippine Multi-Media System and former PLDT official, said in late August that valuation was stalling the negotiations between PLDT and Philippine Multi-Media System.

The Inquirer tried to reach him Tuesday for comment on the reported developments, but Reyes was not answering his mobile phone.

Philippine Multi-Media System uses PLDT's Mabuhay Satellite to broadcast content to more than 100,000 subscribers nationwide.

Reyes said Dream Satellite was now the second largest pay TV company in the country. The largest is Beyond Cable Holdings Inc.

PLDT owns one-third of Beyond Cable, a joint venture with the Lopez group. It has proposed swapping its Beyond Cable interests for the controlling stake in the Lopez group's phone company Bayan Telecommunications Philippines Inc., or BayanTel.

A source said PLDT chairman Manuel Pangilinan's plan "is to bring down the rate of Dream by offering more programs. He can do that with Echostar, which has more than 200 channels."

Dream Satellite is considered more expensive than the traditional cable providers.

Sources said that if talks with Dream failed, PLDT would open negotiations with other direct-to-home providers such as Pacific Cable Inc. and GV Broadcasting.

Under the plan, the joint venture between PLDT and Echostar will provide clients with home antennas. It will also supply more than 2,000 video and audio channels. With

Glo & Marcos

There's The Rub : Martial law

Conrado de Quiros
Inquirer News Service

TODAY is the anniversary of martial law -- a fact that has taken on exceptional importance notwithstanding that it isn't the 25th or 50th but the 33rd. I know that because I've gotten a number of invitations from schools, media groups and NGOs to compare martial law and Gloria Macapagal-Arroyo's rule. That very formulation suggests people see a basis of comparison between the two. I doubt I was invited to show the contrast between them.

There is much ground for comparison. At the very least, both rules are based on an outright lie. Ferdinand Marcos lied about everything, including the date when he declared martial law. He did not declare martial law on Sept. 21, 1972, he did so on Sept. 23, 1972. Sept. 21 was a Thursday. Marcos declared martial law on midnight the following day, Friday, technically the 23rd, Saturday. The reason for it being to prevent the activists and the opposition from taking to the streets or organizing anything to oppose it. Things grind to a halt in this country on weekends and Christmases.

Marcos subsequently antedated it to 21 because of one very interesting thing. He believed in the magical properties of 7 and its multiples, or at least that it brought him luck. Well, there is no arguing against history: He ruled for 14 years under martial law. Lucky for him, unlucky for the country.

Ms Arroyo's rule is also based on a lie, or a series of lies. The first is that she deserved to replace Joseph Estrada morally, if not legally. Unlike Cory Aquino who strode in the front lines in the fight against Marcos, Ms Arroyo hid under the bed, to use the late Louie Beltran's famous phrase. The second is that she promised not to run, which needs no further comment. And the third is that she won the elections. "Hello, Garci" proves otherwise. That phrase, which encapsulates a whole constellation of meaning, will not go away; it will hang on Ms Arroyo's head throughout her life, or rule. Which is probably one and the same: She can no longer live without power, a thing she shares with Marcos, or even surpasses him in, which bodes apocalypse for this country.

That, quite incidentally, makes her worse than Marcos. Marcos at least got voted into office twice, the first when he beat her father, Diosdado, and the second when he beat Serge OsmeƱa's father, Sergio Jr. Marcos was still president when he declared martial law, albeit one whose term was ending at the end of the following year and he was constitutionally barred from running again. The wonder of it, as I've said before, is that we've been brought to this living hell today by someone who was never elected president of this country.

Marcos had no right to rule after 1973. Ms Arroyo had no right to rule -- legally as well as morally -- after May last year. Their rule was/is a lie.

For those who keep asking whether Arroyo can, or will, declare martial law, wonder no more. She has declared martial law, if unofficially, if a thinly veiled version of it. The bottom line there is: Martial law was a palace coup. Arroyo's continued existence is a palace coup.

Both rules were/are overwhelmingly unpopular. Their methods of enforcing their palace coups vary in some parts but are the same in others. Marcos used two things to prop up his rule. The first was naked force, in the form of the military. The second was law, or the kind of law based on its letter and not on its spirit. Indeed, the kind of law where the letter kills the spirit. Marcos himself was a lawyer and relied on legalism to give the most illegal, or illegitimate, act a veneer of justifiability. Marcos had the executive, the legislature, and the judiciary in his pocket. Ms Arroyo has the executive, or what remains of her Cabinet, the House of Representatives if not the entire Congress, and the judiciary in her pocket. Marcos was the law unto himself, Ms Arroyo is the law unto herself.

There is a precedent for the House of Representatives killing the impeachment bill, which is the Constitutional Convention approving Marcos' Constitution. Marcos re-convoked the Con-Con immediately after martial law (the pre-martial one had proven intractable) and its delegates promptly yielded to his wishes. The only difference is that Marcos relied more on the stick than on the carrot to make the Con-Con give him what he wanted. Ms Arroyo relied more on the carrot than on the stick to make the House give her what she wanted. She just bought them all to hell. Or most of them, my thanks go to those who stood their ground, amid the swirl of greed around them.

Marcos' illegitimate rule (after martial law) was essentially mob rule hiding under the mask of legality. He and Imelda pretty much did as they pleased, backed up by a cabal of generals, cronies and petty bureaucrats drunk with power, but with the courts to clean up after them. Ms Arroyo's illegitimate rule (after May 2004) is essentially mob rule hiding under the mask of legality. Arroyo and Jose Pidal pretty much do as they please, backed up by a cabal of generals, cronies and chimpanzees in striped suits, also called congressmen, drunk with power, but with the Firm to clean up after them. You now even have Pidal crowing that the way Pacquiao TKOed Velasquez was the way the House TKOed the impeachment bid. Like I said, drunk with power.

But the biggest similarity of all lies in the character of Marcos and Ms Arroyo themselves. I recall something I wrote last year before the elections in reply to a pro-Arroyo voter who complained bitterly about my comparing Ms Arroyo to Marcos. Surely, she said, I knew in my heart that wasn't true. Surely, I replied, I knew in my heart it was so. Today, surely, I know in every part of my anatomy it is absolutely so. We do not end this now, we will not see the end of Ms Arroyo, not even after 2010.

We will also not see the end of decent Filipinos dying from sheer apoplexy.