Regulators hike investment caps of preneed firms

Regulators of the Philippines’ insurance industry yesterday threw a lifeline to the troubled preneed sector—nonlife firms that offer services such as pension, education and memorial plans—by raising the cap on the amount of their funds that could be set aside for investments.

Insurance Commissioner Dennis Funa said that recently issued Circular Letter No. 2017-28 would henceforth allow a 2-percent increase in the investment threshold allocation under the Pre-Need Code.

This upward adjustment increases the allowable investment in long-term commercial paper from 15 percent to 17 percent of the total amount of the trust fund; in direct loans from 5 percent to 7 percent; in equities from 30 percent to 32 percent, and in real estate from 10 percent to 12 percent.

The latest data from the Insurance Commission showed the local preneed industry having total assets of P120 billion at the end of 2016, of which P101 billion was invested in earning instruments. Almost 700,000 preneed plans were sold last year, almost unchanged from 2015’s levels.

“This adjustment is pursuant to the authority of the Insurance Commission to adjust the percentage allocation per category set under the Pre-Need Code which must not be in excess of two percentage points upward or downward and such adjustment must not be more often than once every five years,” the regulator said.

As provided under the Pre-Need Code, the exposure limit in any particular issue will not exceed 10 percent of the allocated amount.

Funa said that this increment in the threshold on investment allocations of pre-need companies was brought about by “the troubling recent trend of flat and declining investment yields.”

“Considering this situation and the current limit under the Pre-Need Code, which prevent the trustee banks of preneed companies from taking full advantage of instruments with higher returns, the Insurance Commission decided to increase the present threshold,” he said.