Question & AnswerQ&A (SEC MEMORANDUM CIRCULAR NO. 6)
Actuarial liability reserves must be set up for all pre-need benefits guaranteed and payable by the pre-need company as defined in the pre-need plan contracts.
Insurance premium reserves must be set up as a separate liability account when insurance coverage is provided in the plan contract.
The actuarial reserve liability must be determined by using a prospective method and in accordance with the Guidelines and Standards of the Actuarial Society of the Philippines (ASP).
The net level contribution method of prospective valuation for both pre-need benefits reserve and insurance premium reserve shall be used when there is deferment of expenses.
Only first year commissions, overrides, and bonuses may be deferred. Administrative and other marketing expenses shall not qualify for deferral.
The period of deferment shall not exceed the installment payment period and must be in accordance with the SEC New Rules on the Registration and Sale of Pre-Need Plans under Section 16 of the Securities Regulation Code.
The actuarial reserve liability shall not be less than its reserve minus the uncollected contributions to reserve up to the date of valuation, multiplied by a validated reinstatement factor as determined by the actuary, provided the uncollected contributions to reserve are not reflected as assets.
The interest rate assumption shall in no case exceed 80% of the average interest rate for the longest term Philippine government security traded during the previous three months.
The actuary must show conclusive proof of the actual net yield and its attainability during the remaining period of the contracts whose reserves are being valued before assuming such experienced net yield.
The actual experience of the company in the last three years must be considered or the industry experience in the absence of reliable company data.
No decrement rates other than utilization rates for the contingent principal benefits may be used; any exceptions must be justified and approved by the SEC.
The actuary must validate every year the actuarial assumptions used in reserve valuation and include a statement of the validation procedure in the actuarial certification.
This circular supersedes Memorandum Circular No. 6 Series of 2002 and took effect immediately as of April 10, 2003.