GSIS reinsurance monopoly: Profile of a favored broker

Philippine Center for Investigative Journalism (Fifth of a series)

Click here to read Part I
Click here to read Part II
Click here to read Part III
Click here to read Part IV

Apart from Napocor, Jardines is involved in another controversial deal: the reinsurance of the EDSA Metro Rail Transit 3 project operated by the Department of Transportation and Communications (DOTC) and the winning private consortium, the Metro Rail Transit Corp. (MRTC) under a build-lease-transfer (BLT) agreement.

As one of the flagship projects under the Ramos administration, contracts on MRT-3 were monitored by the presidential flagship committee then chaired by Lito Osmeña, known to be the political patron of GSIS president and general manager Winston F. Garcia.

As soon as the contract was awarded in 1995, then DOTC Secretary Jesus B. Garcia, Jr.–a cousin of the GSIS president–ordered the private consortium to insure the project with GSIS.

The legal basis was Administrative Order No. 111, signed by President Ramos, directing GSIS to insure privatized corporations and BOT projects where the government has interest.

Secretary Garcia, in a Dec. 18, 1995 letter to MRTC chairman Robert John Sobrepeña, said the private consortium should advance the insurance premiums to the GSIS. He said the DOTC will reimburse the private company out of adjustments in rental fees on MRTC.

The MRTC, however, bought its own policy from local private insurer Prudential Guarantee and Assurance, Inc. The GSIS meanwhile gave the DOTC a "wrong" type of policy but still demanded payment of the premium, amounting to $6.9 million. For the next two years, the two agencies exchanged demand letters–the GSIS, on the payment of the premium; the DOTC, on the amended policy.

Finally in May 1998, GSIS senior vice-president for general insurance Amalio A. Mallari informed the DOTC that the state pension fund had already "fully paid" its reinsurer the premium for the policy. To this day, the DOTC has refused to honor the GSIS policy until it has been amended. Neither has it paid the premium.

Yet GSIS’s broker–Jardines–received $5.4 million in reinsurance premium in May 1998. Until now, DOTC and GSIS are still disputing the case.

Jardines president Gil E. Cortez defended the payments. "If they don’t pay on time, the policy lapses… so sometimes there’s an arrangement between the GSIS and the client" to advance the payment to reinsurers.

Cortez added that Jardines was not directly involved in the project as the Ayalas’ FGU Insurance got the business and reinsured it with Jardines. At the time, Cebuano lawyer Rufino Antonio "Boy" Mijares was the general agent who handled the deal for FGU. In the industry, Mijares is known as a close friend and business associate of Winston Garcia.

Apparently, this was not the only time GSIS had advanced the premium to Jardines. GSIS Reinsurance Division chiefs already called management’s attention to the huge advances to several brokers, including Jardines, and recommended their suspension from any dealings with GSIS.

But these division chiefs were hastily transferred to another department after they made the recommendation, GSIS insiders say.

As Jardine Aboitiz Insurance Brokers, Inc. (JAIB), the company was number one in terms of premiums and commissions from 1993 to 1998. In 1998, the company’s premiums peaked at P1.9 billion. This was when it first handled the Napocor account, the biggest in the country.

The following years, however, Jardines started to be in the red. In 1999, it booked net losses of P35.4 million. The losses doubled to P71.2 million in 2000 as operating expenses outgrew commissions.

The losses coincided with the years Jardines cut its ties with the Aboitizes, which then had a 51-percent stake but no management role in the company. They were also the years Jardines started concentrating on direct brokering and got out of the reinsurance business.

Industry players saw Jardines’ decision as mind-boggling, given that the reinsurance business had fattened the company with commissions for six years. Starting in 2000, Jardines moved down to second spot in the industry ranking.

This was when Jardines relinquished the throne to Orient Pearl. Last year, Orient Pearl was able to book P1.1 billion in premiums but declared gross commissions of only P8.5 million–not even one percent of its premiums. Its 2000 declared net income was only P570,723.

A front for GSIS dealings?

For a company staffed with only seven locals–the general manager even doubling as accountant–Orient Pearl strangely had huge operating expenses. Last year, this amounted to P7.7 million, from only P995,080 in 1999.

What is curious is that the company occupies the entire second floor of Jardines’ old office on Buendia in Makati. It is also run by Celestino Anacion, who headed Jardines’ reinsurance division until 1999, the year Orient Pearl was formed.

By their own admission, Orient Pearl and Jardines have been sharing commissions and fees from GSIS deals since 2000, when Orient Pearl became fully operational. This explains why Orient Pearl’s earnings are so small despite the volume of its business.

Jardines president Gil E. Cortez said the British firm does not own shares in the firm, although he admitted Orient Pearl was incorporated by his business partners and friends in the industry.

He said the two companies have a "technical services agreement" that compels Orient Pearl "to reinsure whatever business it gets through us." Jardines then turns around and reinsures the business directly with its Singapore and London offices, he said.

Under the agreement, Orient Pearl "gets the credit" in producing the premiums and "it gets commissions out of the commissions that Jardines gets."

Orient Pearl appears to be the front for Jardines’s dealings with the GSIS. In fact, all the premiums booked by the company last year were from the state pension fund. These included reinsuring power projects such as the Laguna hydroelectric power plant run by the Argentinian firm IMPSA Ltd. and the Sta. Rita co-generation facility in Batangas, where government interest is involved.

Because it is not a member of the Lloyds Group underwriting syndicate, Orient Pearl needs access to the London reinsurance market; hence, the "technical servicing" provided by Jardines, explained Cortez.

While Anacion concedes that Orient Pearl’s premiums were all from GSIS-related business, he considered these "private accounts" since it is the private contractor who is required to buy the insurance policy under its BOT agreement with the government.

Anacion said though Orient Pearl was barely a year old, it already established "a good relationship" with GSIS under a "reciprocity agreement" wherein the broker would solicit the business from a government agency or a private contractor and refer it to the GSIS, which would retain part of the risk.

In return, GSIS would tap Orient Pearl as a broker for the reinsurance which would then be passed on to Jardines’s Singapore and London operations.

(To be continued)