NEARLY a month after meeting with executives of the Philippine Crop Insurance Corp. (PCIC), PCIC Board Chairman and Finance Secretary Carlos G. Dominguez III expressed dismay on the risk-seeking tack of the state-run insurer.
“The PCIC is the perfect example of how not to manage risks,” Dominguez was quoted as saying during his meeting with the PCIC board members last November 19.
A statement from the Department of Finance (DOF) said the DOF chief learned the corporation needs to correctly price the commodities covered by its insurance after a presentation showed the PCIC has been paying out claims more than it is collecting premium payments for certain types of crops or subsectors it covers.
Dominguez said the state-run firm should spread its risks and apply the best practices of other countries to improve its financial status.
Land Bank of the Philippines (LandBank) President and CEO Cecilia C. Borromeo also said during the meeting that 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 sources like the General Appropriations Act and the Agri-Agra law [Republic Act 10000 or the Agri-Agra Reform Credit Act], 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 was quoted as having expressed during the meeting.
According to Dominguez, the PCIC would have earned more money had the firm placed P6.8 billion of its cash assets in other higher-yielding investments.
However, unnamed PCIC executives said during the meeting its cash assets were mostly in LandBank and the Bureau of the Treasury (BTr).
National Treasurer Rosalia V. De Leon pointed out that the cash being invested by PCIC comes from the subsidy provided by the government. Thus, according to De Leon, the PCIC’s investment in the BTr is like returning to state coffers money that earns passively by incurring interest.
The DOF said Dominguez has ordered PCIC President Jovy C. Bernabe to instruct the firm’s Treasury Office handling the corporation’s investments to coordinate with the Government Service Insurance System (GSIS) in finding ways to increase the yield of PCIC’s cash assets.
The finance chief was quoted as saying that the GSIS “is in a better position to assist the PCIC” as it has been efficiently handling about P1 trillion in investments for the state pension fund and its members.
Apart from enhancing PCIC’s investment portfolio, Dominguez reportedly also directed the GSIS and LandBank to work with the state-run firm to find ways to efficiently manage risks.
He was said to have issued the directive after finding out that the PCIC has been spending 35 centavos for every peso that goes out of the company.
A DOF statement quoted GSIS President and General Manager Rolando L. Macasaet as having said that compared to the PCIC, the GSIS spends only around 3 centavos to 5 centavos for every peso it gives out.
Dominguez, who chairs the Social Security Commission, said the Social Security System, for its part, spends about 6 centavos for every peso going out of the pension fund.
The DOF chief reportedly asked Macasaet and Borromeo to “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.
The DOF said that it was also during the meeting that De Leon reminded the PCIC that the source of its premium subsidies comes from the budget under RA 10000. The National Treasurer added that once proposed amendments to this law are passed by Congress and enacted, the PCIC 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 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 along with the Support to the “Parcelization of Lands for Individual Titling” (Split) program of the Department of Agrarian Reform.
“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 reportedly said.
Macasaet was said to have proposed that the PCIC expand its base of paying clients so that the firm can generate income from its insurance operations.
Agriculture Undersecretary Fermin D. Adriano was quoted to have said that the 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 D. Dar, the vice-chairman of the PCIC board, in the meeting.
The DOF said Dominguez earlier instructed the PCIC to present its revised financial statements for 2020 that conform with the Philippine Financial Reporting Standard (PFRS) 4. However, the presentation during the meeting was deferred because the corporation has yet to clear these reports with the Insurance Commission.
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.
The DOF said their chief has made it clear in previous PCIC board meetings that the government has no intention of reducing the premium subsidies being extended to the PCIC, but such funds should be used efficiently.
The DOF said this is the reason the PCIC Board wants to examine the firm’s expenditures to compare these with those of other corporations engaged in insurance operations.