CASE ANALYSIS

(COLLEGE ASSURANCE PLAN)

Engineering Management

EMGT101-1

CE – A06

Submitted by:

JUSTADO, Paula Mae V.

Submitted to:

Engr. Voltaire De Leon

December 17, 2019

College Assurance Plan (CAP)

Several years ago, pre-need companies became famous because it helps a lot of Filipino
parents to send their children to college, large portion of Filipino families relied to the assurance.
The company supports the parents by the time their children step upon the portals of colleges and
universities for a college education. During the time of the success of this pre-need companies,
they are accusations came flying from all directions about these companies, according to
accusations they were either bankrupt or they are all scams depending on which company you are
interested in.

The biggest company that have suffered with the issue is the College Assurance Plan or
CAP, it is the most pioneer in the industry that time. CAP had the largest number of plan holders
subscribed to their pre-need education plan, the company was greatly affected when suddenly a
certain government official publicly declared that CAP was bankrupt. Lots of people who
subscribed to the them questioned the company use of their trust funds and some of them had the
Securities and Exchange commission or SEC freeze their accounts.

Back in the early 1980s College Assurance Plan Inc. was a name to be established with in
the business of providing tertiary or college education and was a treasured asset which every
Filipino parents would emphasize to their children. 1980s to 1990s, the company is not having a
problem on what they have offered and promised plan to its plan holders and with that CAP became
the industry leader in sector capitalizing on its track record and being the pioneering company.
The company set foothold in the country`s industry that has boosted market for pre-need plans
leading other companies or firms to compete with CAP.

Problem

The leading of CAP brought to its downfall when the problem about the announcement
that College Assurance Plan, Inc. is currently facing Liquidity problems resulting to their inability
to cover its liabilities and obligations to their plan holders. Families that was subscribed to the
plans of CAP at the time were infuriated and began demanding that the company should give back
their money and some already cancelled their subscription. This caused further problems to the
company, as their reputation was ripped apart in one sudden news and their potential to sustain
their income suddenly fall off.

The government officials and SEC tried to prove CAP`s bankruptcy by using an accounting
principle known as the Actuarial Reserve Liability or ARL to measure the CAP`s finances. The
results of the ARL showed that CAP was running at a staggering loss, in fact it is said to be billions
of pesos losses that was experiencing by the company, using those results, the SEC continued to
attack the company and they have used the numbers that was found using ARL to convinced CAP`s
plan holders to stop their payments.

CAP questioned the use of ARL in a pre-need company, ARL is an accounting principle
that determines the immediate liability of a company, it is normally implemented to regulate
insurance companies. Insurance companies should be regulated by ARL because the product
known as the Insurance Policy doesn`t have a definite and measurable time before lapsing, it means
that the company may have to come up with the full amount of promised insurance money at any
time.

Having an ARL ensures that the company will always have enough money to fulfill their
promise of insurance to their subscribers, therefore it is the right principle in observing the finances
of insurance companies. But, in that is for insurance companies and in the case of Pre-need
companies there is a definite and measurable time before the plan can lapse and that means that
pre-need companies should not be held immediately liable.

In other words, there is no possible situation where a pre-need company to become liable
immediately after the first instalment is paid. Therefore, ARL is not the proper method to use in
order to check the finances of a pre-need company, it will not be accurate since the company should
not be force to be immediately liable when they are actually not.

Solution
I think the possible solution the CAP`s problem is that they should have come up to a more
strategic plan on how they can solve issues when it is about accusations, they are lack of solutions
to the problem that they have nothing else to do but to surrender and take all of the attacks that
they are getting. If only they know how to handle such problem, they could have survived and they
should not be paying the consequences of the problem that they did not start in the first place.
Since the issue got bigger and people became scared of the possibility of not getting their
money back, they start to withdraw their savings and not let any single peso to be left in their
account and for those who still did not get their money back, they continue to demand for it. In
this case that it seems to be not solvable because people will be in so much fear of their money,
the company should just sell their other assets and pay for those people who demands for their
investments and the CAP should a lot enough money in order to pay them back so that the issue
will be solved and CAP can once again gain the people`s trust.
Conclusion
In conclusion, the problem with College Assurance Plan or CAP did not start with them
having losses and being insolvent, but it is because of false accusation that lead them to bankruptcy.
It is because of the public declaration of the bankruptcy that resulted to the situation that is until
now facing by the CAP, this declaration grew wide and triggered the Filipino families who invested
in CAP and immediately back out with their subscription.
However, the CAP is considerate enough that even though they are the victim of false
accusation they still choose to bring back the losses of the families who are plan holders and they
are still trying to gain back their reputation as the pioneer pre-need company. The company also
manage to not turn their back to the people who needed their money back and they did not choose
to leave them behind despite the issue that was attacked to them.

References:
https://captruth.webs.com/
https://www.scribd.com/doc/117888553/College-Assurance-Plan