FOR years, Jardine Lloyd Thompson Insurance Brokers, Inc., the fifth-biggest broker in the world, cornered some of the biggest insurance deals in the country.

There is a simple reason for this: its biggest client is the Government Service Insurance System (GSIS), which is mandated by law to secure some P1.5 trillion worth of state assets.

In the 20 years that it has been operating in the country as a company owned by British firm Jardine Davies Inc., Jardines has not been questioned publicly about its dealings. But since September, when National Power Corporation (Napocor) president Jesus N. Alcordo blew the whistle on the “overpriced” insurance contract that GSIS sold to the power company, Jardines has been openly described by Napocor officials as a “favored broker” of GSIS.

In the insurance industry, Jardines’s close relationship with GSIS has been an “open secret” for many years, says one long-time insurance agent. In huge deals involving GSIS, Jardines’s name always surfaced, insurance brokers say.

Until recently, Jardines was the top reinsurance broker in the country. Last year, it was overtaken by the little-known Orient Pearl Insurance and Reinsurance Brokers, Inc., which started operating only in 1999.

Documents, interviews, as well as interlocking relationships indicate that Orient Pearl is actually a front for Jardines. The company was apparently formed so that Jardines could steer clear of the controversies that were bound to be generated by its dealings with the government.

A company insider added that Jardines’s London headquarters frowned upon the way the Napocor account had been handled and didn’t want the British firm’s name dragged into the fray.

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 Corporation (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.

Sec. 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’s 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.

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’s 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.

GSIS’s dealings with Orient Pearl, however, violate its own policy of reinsuring directly with the National Reinsurance Corporation of the Philippines or with local and foreign reinsurers with a net worth of at least P50 million and $20 million, respectively. Records show that Orient Pearl has a paid-up capital of only P62,500 and resources of P1 million in 2000.

Anacion said Orient Pearl has so far already referred around five big “private” accounts to GSIS. He boasted that the premiums Orient Pearl now handles are “much, much bigger than Napocor,” totalling $14 million.

Justifying the business, he said: “I’m not a risk-taker so I just place from GSIS.” These are “facultative” placements where Orient Pearl does not have to absorb the risk but merely passes it on to another company like Jardines, he said.

This would explain why the company only earned P8 million in commissions last year, he said. “Even on a premium of, say, P500 million, I would be happy just to get a fee of P5,000 para lang kumita (just so I could earn),” Anacion said.

Though he left Jardines in 1999 when the British firm had decided to shut down its reinsurance business which he helped build and managed, Anacion said he continues to handle Napocor’s account for Jardines.

In fact, he claimed he was entirely responsible for the big-ticket account—from the solicitation, the preparation of tenders in the past three years, down to the documentation on negotiations for the renewal of the $13.5-million policy last year. Anacion said “God is so kind” to him that the Napocor deal has fallen on his lap since 1998.

This was partly because of Jardines’s maverick style in approaching the London market, he said, allowing it to beat global giants Aon Corp. and ALS Insurance Services-Willis Corroon in the last tender for Napocor.

In the March 1999 bidding, ALS-Willis Corroon was the original winner but failed to place the deal with international reinsurers in three weeks. Industry sources said ALS-Willis Corroon officials privately blamed the GSIS for changing the bidding terms in the middle of the placement period but this could not be independently confirmed.

Second-best bidder Aon, which teamed up locally with the Ayalas, also failed after the GSIS gave it only three days to make the placement abroad.

Anacion said Jardines, which then gave the third-best bid, was able to place it in just 24 hours to clinch the $5-million deal. He admitted Jardines already got ahead the commitment of London underwriters to support its $5-million quotation. The international reinsurers thus no longer supported the tenders of ALS-Willis Corroon and Aon, which only went to the market after winning in the bidding. They saw the promise of fetching bigger commissions from Jardines’s bid, he explained.

When Jardines was given the 24-hour deadline to place the deal, Anacion said he did not even see the need to go to London “because when I got the quotation, nakapirma na lahat yung underwriters na may rate na supported” (the underwriters have already signed up and indicated their pricing).

Local brokers working for foreign companies in Manila say this strategy may be effective but not usually done as no reinsurance brokers would be willing to stake their reputation if the tender goes awry. “What if you already got confirmations on your quote but you still lost in the bidding? You’ll just be embarrassed,” one broker says.

Honesto General, a long-time insurance broker and an insurance columnist, says the strategy could only be resorted to if the bidder was “very sure” it will eventually bag the deal. In the case of Jardines, he said, the foreign broker may have gotten an assurance from GSIS ahead of the bidding that is why it is confident it would end up with the account.

A repeat of the 1999 scenario may have happened last September when Napocor went to the market to insure its $6.5-billion assets and failed to lure reinsurers to its public bidding.

Prior to the bidding, Jardines already warned Napocor of a possible failed bidding due to “increasing signs of hardening” in the market that could make reinsurance at the time costly for the state agency.

In a September 20, 2001 letter to Napocor, JLT Risk Solutions Asia, Jardines’ Singapore unit, also said “at the request of GSIS” it tried to get reinsurers to agree on a 60-day extension on the policy but was rebuffed. Jardines instead offered to renegotiate its contract with Napocor.

Since Jardines was actively negotiating for the Napocor policy representing GSIS, foreign reinsurance brokers said this “created confusion” in the market and prevented underwriters from taking any interest in the broker tapped by Napocor for its own bidding.

Napocor blamed Jardines’s “blocking tactics” for its failed bidding for the 2001 to 2002 policy. Despite being the largest client of insurance firms in the country, Napocor found no takers and was unable to get insurance.

As a result, never has Napocor been exposed to so much risk as now, with its $6.5 billion worth of assets vulnerable to financial losses. Should one of its power plants bog down, the agency would not have the cash to fix it, nor the insurance to cover for the loss.



Copyright © 2001 All rights reserved.
PHILIPPINE CENTER FOR INVESTIGATIVE JOURNALISM