CAP back soon to pay education policy planholders

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College Assurance Plan (CAP), which stopped its operation in the early part of the last decade, may be back this year to pay its dues to its planholders.

The pre-need company is going through a revised rehabilitation process under the supervision of a Rehabilitation Court, represented by Branch 149 of the Makati City Regional Trial Court (RTC). The process was decided by the RTC in September last year.

During the process, CAP would resume payments for the benefits of its over 400,000 planholders nationwide in a span of 10 years, starting from the early part of the first quarter of 2014.

Mert Marcelo, the company’s rehabilitation receiver whom the court appointed, told The Manila Times that the company would prioritize paying education benefits to clients who first availed of its college education plans when the company began selling them in the 1980s.


Proposals for rehab, redevelopment
When CAP applied for rehabilitation in April 2005, the court asked the company to come up with proposals to replenish its trust fund that suffered immense losses. In return, CAP submitted studies showing that it can earn enough to replenish the depleted funds.

Among the measures CAP will undertake is the redevelopment of its real estate properties through partnerships. A possibility is the building of high-rise structures to replace the buildings that served as the local offices of CAP nationwide.

The Rehabilitation Court previously approved the redevelopment of more than a dozen properties of CAP, all vast ones.

In fact, Bobby Café, executive vice president of CAP, told The Manila Times that the company has partnered with Metro Countrywide Corp. to construct a 36-storey high residential/commercial building to replace CAP’s office in Cebu City. RR Payumo and Partners provided its blueprint.

He added that CAP’s other offices in the town of Carmona in Cavite, Bacolod City, Iloilo, Davao and even the head office on Amorsolo Street in Makati City would also be redeveloped. The projects would depend on the feasibility studies presented to CAP by potential venture partners.

“These about 15 buildings owned by CAP would be redeveloped into hotel or condominium systems, commercial establishments, or shopping centers,” Café said.

The company would also sell right away its small properties where high-rise buildings could not be built.

Café and Marcelo explained that the company would be able to recover the lost portions of the trust fund from the lease and sale of both the redeveloped and small real properties. They also denied that a new investor would come in to help the company replenish the trust fund.

“We project that about 55 [percent]to 60 percent of the contract price of the plans would be paid to our clients in 10 years’ time through such leases and sales,” Marcelo said.

He also said that on the 10th year, if CAP would decide to sell the redeveloped properties once the lease terms are terminated, CAP would continue paying additional benefits to planholders.

Three factors for downfall
In response to the previous article of The Times titled “Pre-need companies slowly disappearing” published in December last year, Café
noted that three factors contributed to the downfall of CAP.

One was the deregulation in the tuition of the country’s private-run colleges and universities in 1992, which caused a spike in tuition and a surge of those applying for college education plans.

Another was the Asian financial crisis in 1997, when so much investment was placed in real property in most parts of Asia, yet only a few managed to actually acquire such investments. In the case of CAP, Café explained that its real estate properties which were included in the trust fund dropped to more than half in value.

“Yet we still managed to operate because we were able to place new capital into our trust fund,” Café said.

Ultimately, CAP suffered much that it had to stop selling education plans because of the new rules laid down by the Securities and Exchange Commission (SEC) in 2002. The enforcement of the so-called Actuarial Liability Reserve (ARL) valuation method by the SEC contributed to the collapse of CAP.

ARL is used by life insurance companies in evaluating the sufficiency of their insurance reserve to immediately pay clients.

CAP opposed that ARL implementation, saying in a previous statement that the method only made it appear that an education plan—which would be acquired by a one-year-old planholder and would be used after 17 years when he or she would enter college—would appear to be an actual trust fund liability in the company’s annual financial report.

Since CAP could not longer operate, the SEC revoked its license to sell education plans.

“We estimated that 30 percent to 40 percent of CAP’s rehabilitation would depend on SEC’s approval to renew the company’s license to sell,” Marcelo said.

According to Café, the proposals for redeveloping CAP’s properties would be better than liquidating all of the company’s assets, as previously suggested by the SEC.

“When we liquidate all our assets, we would never be able to continue paying our planholders,” he said.

Also, Café said that Republic Act 9829, or the country’s pre-need code which mandates that the Insurance Commission instead of SEC set the guidelines for operation of pre-need companies, was enacted on a later date. The law was signed in 2009, about five years after CAP stalled in paying benefits to its planholders.

‘Pre-need will stay’
“The focus of CAP now is to resume paying our planholders, and nothing else,” Café stressed. “Will we be going back to business? It depends on the decision of the board,” he added.

However, Café stressed that pre-need companies would always be around to serve its clients “as long as there is a particular need.” He cited the high sales acquired by sellers of memorial plans nowadays.

“If the company is only after its profitability, then the sun will set for the pre-need industry,” Café said.

“But the goal of the pre-need companies is to meet a particular need, and that need will never diminish, so pre-need is here to stay,” he added.

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