| Q & A on PETPLANS and the PRE-NEED INDUSTRY |
Q. What is the situation in the pre-need industry?
- The pre-need industry is faced with serious difficulties. The market has shrunk by more than half of what it was three years ago. Last year, the industry's sales shrunk by some 45%, in the first
quarter of 2006, industry sales further shrank by 20%.
We see a continuous deterioration of the business.
Q. How did this come about?
- The decline in the pre-need business was caused by the loss of public confidence in the industry as a result of the default in payment of benefits by some large companies. This default may
have been caused by, among others, the following reasons:
- The deregulation of tuition fees in 1992 that led to the skyrocketing of such fees between 25% to 100% per year
- Lower interest yields on Trust fund investments as a result of the Asian financial crisis of 1996 and its lingering effects.
- The new accounting rules imposed by the SEC which have caused major difficulties for pre-need companies as these rules would in some cases portray the companies as deficient in capital of financially unstable when in fact they are not.
Q. What has been the role of the Securities and Exchange Commission in these problems?
- The SEC is the government-regulating arm that prescribes and enforces rules governing the pre-need industry. Companies entering in this business are well advised of the SEC rules before they assume operations. However, in response to certain incidents in the pre-need industry, the SEC changed the rules, "in the middle of the game" or when the companies were already operating under these rules, and made it difficult for the companies to sustain their operations.
Q. What is the present position of PETPLANS?
- PETPLANs has been prudent in its financial management. It has been responsible and proactive in protecting the interets of its planholders, business partners and employees. The company remains financially sound. Its trust fund amounts to Php 2.7 billion, with about 44% of it in cash or near-cash equivalents. It is in a solid position to meet its obligations to planholders because its liquidity position is way above 10% requirement set by the SEC.
Q. Does PETPlans have a solution to the present difficulties affecting its Planholders and the entire pre-need industry? What would that be?
- Yes, it has found a way by which planholders can still get the best value for their investments and create a win-win situation for all concerned parties. This is to evolve from a pre-need company to one that focuses on the marketing of other financial products and services.
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| Best Alternative to Pre-Need Plans |
PETPLANS will be shifting out of the pre-need industry because the pre-need framework is no longer conducive to selling or owning pre-need plans.
We are moving from the pre-need environment to what we believe is the best alternative for our planholders.
Our core leaders and sales managers are staying with us in this new business because we have always been transparent with them and they wish to remain with the company.
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Q. How will this evolution to new businesses come about?
- PETPlans will file before the appropriate court the proper petition accompanied by the required supporting papers that will allow the following:
- Conversion of its pre-need plans into a professionally managed Mutual Fund designed to ensure that all planholders equitably share in the trust funds.
- PETPlans will continue as a business no longer as a pre-need company but one that focuses on the marketing of other financial products and services.
- Planholders will exchange their pre-need plans, contracts and insurance certificates for a Fund certificate indicating a certain number of shares with a corresponding value proportionate to their share in the fund.
- Pending the approval of PETPlans' petition to the court, the company will pay planholders whose benefits are due.
- For planholders who are not yet fully paid, all the subsequesnt payments will be deposited into the mutual fund credited to the account of the planholder, net of the usual bank Transfer Fees.
Q. What are the advantages of the Mutual Fund?
- There are several advantages. While the law does not allow guarantee a return, they may provide reasonable returns for the planholders' investment.
The management of the trust fund by a very large, experienced and reputable institution, which can easily be accessed by planholders nationwide, will help reassure the planholders with peace of mind as their investments are intact and being taken care of.
Freed from the investment constraints of pre-need companies, the Fund can now benefit from a much broader range of investments that allow for better risk management, more realistic asset-liability matches, and higher returns.
Q. What is a mutual fund?
- A mutual fund is a fund operated by an investment company or placed under an investment management, which raises money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities. These funds offer investors the advantages of diversification and professional management.
Q. What will the planholder receive if he/she chooses to withdraw or terminate before the maturity date?
- If the planholder does that WITHIN the three-year period during which the company will restrict plan termination, he/she shall receive an amount computed at a discounted rate.
- If he/she does that AFTER the three-year period, he/she shall receive the face amount indicated in the mutual fund certificate including interests earned.
Q. Will plans maturing within the three-year period get their maturity value?
- The payments of the benefits shall be made as they fall due. Thus, the planholder shall receive the face amount in his certificate and the interests earned.
Q. What will happen to plans that are still within the "paying period"?
- Plans still in this period at the time of the trust fund conversion to a Mutual Fund shall receive an amount approximate to the termination value, provided that the plan is active and updated at that time.
Q. Are the other benefits included in the policy considered?
- Yes, benefits indicated in the policy contract such as the Money Back option is considered in the maturity value of the plan.
Q. Why has it become advisable to evolve from pre-need plans to a mutual fund?
- PETPlans sees itself as in the business of selling, "peace of mind". but the present regulatory environment created by the SEC does not allow for that anymore. After a thorough and painstaking study, PETPlans has concluded that a professionally managed fund is the best alternative to pre-need plans.
Q. What happens if a planholder chooses not to keep his shares in the mutual fund?
- Once PETPlans' petition is approved by the court, the planholder may withdraw his investment of keep it in the Mutual Fund to allow the value of his shares to grow or approximate his former plan's maturity value.
Q. What will happen to PETPlans as a company?
- PETPlans will still be there, servicing its planholders and managing their transition into shareholders of a mutual fund. The company, however, will exit from the pre-need business and expand its marketing of products and services, as well as its business partnerships, so it could continue to serve its customers in the best way it can. It will have a new name, PETLink Financial Corporation.
For further information; please call 894-3151; 840-5950 and 892-5546
or email abella@petplans.com
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