The return of CAP

CTALK - Cito Beltran - The Philippine Star

2022 is beginning to shape up as the year of “comebacks,” such as the return of the Marcos family to Malacañang and BBM elected as President of the Philippines. Riding on that wave are a platoon of Marcos loyalists who now occupy Cabinet and senior positions in government. In the middle of all of these, I recently learned that a once very popular and successful company has been given the opportunity by the Supreme Court to rise from the corporate grave in spite of reported attempts to torpedo its operations and drive a stake through its heart.

The company I refer to is CAP or the College Assurance Plan group. Yes, you read it right. After an 18-year regulatory wrestling match with the Securities & Exchange Commission and the Insurance Commission, CAP recently received a copy of the Supreme Court decision lifting an 8-year-old Temporary Restraining Order and remanding the CAP rehabilitation plan to the Makati RTC, which originally approved of the proposed rehabilitation. As a result, CAP has reportedly begun the release of the first tranche of payments to plan holders last July 20, 2022 until Jan. 20, 2023.

If all goes as planned, parents who invested in CAP’s pre-need educational plans will be able to collect 50 centavos for every peso they invested. This, according to CAP insiders, was a better deal for plan holders compared to the measly 10 to 20 centavos to every peso they would have received if the company assets were liquidated as pushed for by the SEC and the Insurance Commission in court. Once all approved claims and plans have been addressed under the first tranche, there are plans for a second and third tranche.

Eighteen years is a long time and many people may no longer remember the series of events that led to the “fall” of the country’s most successful pre-need plan company. “Pre-need plans” is a Filipino creation. No other country had such a product or service. The concept of saving or lay away money for a future need or scholarship was embraced by thousands of Filipino parents because they had enough time (17 years +/-) to save for the college education of a child. The monthly payments were affordable and there was a lenient two-year grace period for people who fell behind in their payments.

So how could such a successful business model “fail?” For the most part, the blame is on government, directly and indirectly. During the early years of CAP (80’s), tuition fee increases were limited between 10 to 15 percent annually. After continuous lobbying from private schools, the government essentially deregulated tuition fees, which resulted in an average hike of 25 percent annually. So, while the government addressed the cries of colleges and universities, they did so at the expense of the educational pre-need industry and, as a result, led to the serious depletion of funds.

Then the Asian financial crisis hit hard and many banks, investment houses, etc. were seriously affected, including those of the Philippine government. As a result, placements and trust funds etc. did not get the expected return on investment while CAP continued to pay out the tuition fees of beneficiaries that had already matured and were being called on.

During the 80’s and 90’s we also witnessed the phenomenon called “hostile takeovers” where companies would find their shares of stocks or investors were being bought up by companies or persons backed by foreign money. It was also a time when government and politicians were controlled and manipulated by take-over specialists in order to disrupt the established business models or practices. Further complicating such situations were government officials who impose their will on companies and businesses for a myriad of reasons but without the competence to justify their actions.

In the case of CAP, it was all of the above. An ambitious politician who targeted popular or sensitive topics such as health and education introduced legislation designed to force pre-need companies to put up the funds upfront or on standby in spite of the fact that pre-need plans work based on a projected long-term calculation. This was called Actuarial Reserve Liability or ARL. That, however, did not pass through Congress.

While that was happening, the insurance industry was suffering a decline in growth in contrast to the boom of the pre-need plans. To say that insurance corporate bosses here and abroad were envious and wanted a piece of the action would be an understatement. Then in 2002 the SEC required the pre-need companies to maintain Actuarial Reserve Liability or ARL that was being pushed by the populist politician.

CAP suddenly had to come up with billions and billions of pesos. Left with no choice and to help out his father, John Sobrepeña put up a multi-billion MRT bond that was backed by a sovereign guarantee. The SEC allegedly dismissed it as insufficient or unacceptable. So, they reached out to a Canadian investor for help who, in turn, signified willingness to put up $100 million based on a letter from the SEC that they would accept the arrangement and allow CAP to carry on. That never happened. Instead CAP’s founder, the elder Enrico Sobrepeña, was invited to lunch and before he even tasted his soup allegedly received an “indecent proposal” for a hostile take-over.

Instead of helping them out, history shows that the SEC and IC took the matter to the Regional Trial Court, then to the Court of Appeals and then to the Supreme Court, resulting in an 18-year delay. While CAP wrestled with the SEC, a media feeding frenzy took place and resulted in public panic and more government intervention. CAP could have graduated four and a half batches of scholars in 18 years.

An entire industry died due to government interference and legal obstruction. This is only the first part of the story. I heard there will be payback for those who did the most harm.


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