Finance Secretary Carlos Dominguez III has directed the heads of the Government Service Insurance System (GSIS) and the Land Bank of the Philippines (LANDBANK) to work with the Philippine Crop Insurance Corp. (PCIC) in determining ways of efficiently managing its risks and enhancing its investment portfolio to ensure that taxpayers’ money used to subsidize the state-run firm’s operations are being spent well.
Dominguez issued the directive after finding out from PCIC’s recent presentation of the highlights of its operations that it has been spending 35 centavos for every peso that g0es out of the company.
GSIS president-general manager Rolando Macasaet said that compared to PCIC, the GSIS spends only around 3 to 5 centavos for every peso it gives out.
Dominguez, who chairs the Social Security Commission (SSC), said the Social Security System (SSS), for its part, spends about 6 centavos for every peso going out of the pension fund.
The PCIC also informed the Corporation’s Board chaired by Dominguez during its Nov. 19 meeting that it has plunked P6.8 billion of its cash assets mostly in LANDBANK and the Bureau of the Treasury (BTr), which Dominguez said could have earned more money had the firm placed them in other, higher-yielding investments.
Dominguez told PCIC president Jovy Bernabe to instruct the firm’s Treasury Office handling the corporation’s investments to coordinate with the GSIS in finding ways to increase the yield of PCIC’s P6.8 billion cash assets.
The Finance secretary said the GSIS is in a better position to assist the PCIC regarding this concern as it has been efficiently handling about P1 trillion in investments for the state pension fund and its members.
“Rolly (Macasaet) and (LANDBANK president and CEO) Cecille (Borromeo), can you take a lead on this. Let’s determine if we are doing the right thing here or do it in a way that is better,” Dominguez said after the PCIC’s presentation of its highlights of operations and other finance-related matters during the corporation’s 3rd Board Meeting.
National Treasurer Rosalia De Leon pointed out that the cash being invested by PCIC comes from the subsidy provided by the government, thus, what they are investing in BTr is just like returning to the state coffers money that earns passively by incurring interest.
During the meeting, De Leon also reminded the PCIC that the source of its premium subsidies comes from the budget under the Agri-Agra Reform Credit Act, and once proposed amendments to this law are passed by the Congress and enacted, the firm would no longer be able to receive this allocation.
De Leon said that under the proposed amendments to the law, a portion of the penalties paid by the banks to make up for their non-compliance with the provision to extend at least 25 percent of their total loanable funds to agriculture and agrarian reform beneficiaries (ARBs) would no longer go to the PCIC. The funds will instead be utilized for the lending operations of LANDBANK and the Development Bank of the Philippines (DBP) along with the Support to Parcelization of Lands for Individual Titling (SPLIT) Program of the Department of Agrarian Reform (DAR).
“So, in this case, the PCIC would need to have a more efficient operation so that they would be able to conserve their resources to be able to provide more insurance coverage for our small farmers,” De Leon said.
Macasaet proposed that the PCIC expand its base of paying clients so that the firm can generate income from its insurance operations.
Agriculture Undersecretary Dr. Fermin Adriano agreed with Macasaet, and said PCIC should balance its social welfare functions with its commercial operations, which can be harnessed as there is a big market for paying insurance clients in the high-value crops sector.
Adriano represented Agriculture Secretary William Dar, the vice chairman of the PCIC board, in the Nov. 19 meeting,
Dominguez and his fellow board members also learned during the meeting that the PCIC needs to correctly price the commodities covered by its insurance after the firm’s presentation showed that it has been paying out claims more than it is collecting premium payments for certain types of crops or subsectors it covers.
Borromeo said the PCIC should properly assess the risks associated with different crops or subsectors so that it can correctly price the commodity it insures.
“Instead of disaggregating the sources of funds or premiums from the sources like the General Appropriations Act (GAA) and the Agri-Agra law, can we take a look at the premiums paid for rice and corn, for example, versus hogs, versus the high-value crops, and then compare the premiums collected from these different subsectors with the claims of the same subsectors, so that PCIC can properly price per commodity or product?” Borromeo stressed.
Dominguez said the PCIC should spread its risks and apply the best practices of other countries to improve its financial status.
“You know, the PCIC is the perfect example of how not to manage risks,” Dominguez said.
Dominguez earlier instructed the PCIC to present its revised financial statements for 2020 that conform with the Philippine Financial Reporting Standard (PFRS) 4, but the presentation during the meeting was deferred because the Corporation has yet to clear these reports with the Insurance Commission (IC).
The Board also deferred the presentation of the PCIC’s Corporate Operating Budget and Operations Manual for Rice and Corn because it has not yet been approved and endorsed by the Board’s Committee on Governance.
In the previous PCIC board meeting, Dominguez made it clear that the government has no intention of reducing the premium subsidies being extended to the PCIC, but such funds should be used efficiently, which is why the Board wants to examine the firm’s expenditures to compare these with those of other corporations engaged in insurance operations.
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