GOVERNMENT SERVICE INSURANCE SYSTEM
SOCIAL INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS
1.
GENERAL INFORMATION
The Government Service Insurance System (GSIS) is a government financial
institution, organized and created to administer the System’s funds and implement
the laws that govern the social security and insurance benefits of all government
employees. The GSIS maintains its officially registered address at the Government
Financial Center, Roxas Boulevard, Pasay City, which is also its Home Office. It
has 40 field offices strategically located in various cities and municipalities of the
country.
The GSIS was created by the Congress of the Philippines through the passing of
Commonwealth Act. No.186 on November 14, 1936. Its primary objective is to
promote the welfare of the employees of the government through an insurance
system that will protect its members against adverse economic effects resulting
from death, disability and old age.
On May 31, 1977, Presidential Decree No. 1146, otherwise known as “Revised
Government Service Insurance Act of 1977,” was enacted by then President
Ferdinand E. Marcos. On June 24, 1997, Republic Act (RA) No. 8291 otherwise
known as, “The Government Service Insurance System Act of 1997”, was enacted
into law, enhancing the social security coverage of the GSIS.
Pursuant to Section 34 of RA 8291, all contributions payable under Section 5
thereof, together with the earnings and accruals thereon shall constitute the GSIS
Social Insurance Fund (SIF). The said Fund shall be used to finance the benefits
administered by the GSIS under RA 8291. As such, the Social Insurance Fund
(SIF) serves as the core fund of the GSIS, as distinguished from the other funds
that the GSIS is mandated to administer.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1
Basis of preparation of financial statements
The accompanying financial statements for the Social Insurance Fund have
been prepared in accordance with Philippine Financial Reporting Standards
(PFRS)/ Philippine Accounting Standards (PAS), where applicable. The
accounting policies applicable to the life insurance as well as the non-life
insurance operations are in accordance with the generally accepted
insurance accounting principles in the Philippines and reporting practices
prescribed by the Insurance Commission.
1111
2.2
New accounting standards
The Financial Reporting Standard Council (FRSC) approved the issuance
of new and revised accounting standards which are based on International
Accounting Standards (IAS) and new International Financial Reporting
Standards (IFRS) issued by the IAS Board. These new standards have
been renamed Philippine Accounting Standard to correspond to IAS while
the PFRS corresponds to IFRS.
Starting January 1, 2006, the GSIS has adopted the new and revised
accounting standards, where applicable, as follows:
a.
Philippine Accounting Standards ( PAS )
PAS 1
–
Presentation of Financial Statements
PAS 8
–
Accounting Policies, Changes in Accounting Estimates
and Errors
PAS 19
–
Employee Benefits
PAS 21
–
The Effects of Changes in Foreign Exchange Rates
PAS 28
–
Investments in Associates
PAS 32
–
Financial Instruments: Disclosure and Presentation
PAS 36
–
Impairment of Assets
PAS 39
–
Financial Instruments: Recognition and Measurement
The GSIS had an early and partial adoption of PAS 39 on December
31, 2004 on its investment in bonds. Application of the standard on
the rest of the investments was made beginning January 1, 2006.
As of December 31, 2006, the System has not yet determined the
impact of PAS 32 and 39 to the financial statements because the
System is still in the process of enhancing and polishing policies and
procedures and information systems related to the adoption of these
Standards.
Generally, the adoption of PAS 32 and 39 will not result in the
restatement of prior years financial statements as allowed by the
Securities and Exchange Commission. Any cumulative effect of
adopting the standards, however, will be reflected in the equity.
PAS 40
–
Investment Property
The GSIS uses the fair value model. Fair value model requires an
investment property to be measured at fair value with fair value
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changes recognized directly in the statement of revenues and
expenditures.
The GSIS is in the process of determining the real and other
properties owned and acquired (ROPOA). It has not yet come up with
an analysis on the financial impact of the adoption of PAS 40 (fair
value method) because of the volume of transactions and the fact
that assessment/valuation procedures and techniques of the System
have yet to be ascertained.
b.
2.3
Philippine Financial Reporting Standards ( PFRS)
PFRS 1
–
First Time Adoption of Philippine Financial Reporting
Standards
PFRS 4
–
Insurance Contracts
PFRS 5
–
Non-Current Assets Held for Sale and Discontinued
Operations
Centralized Deposit and Funding System or “One Bank Account”
Policy
Under the “One Bank Account” policy, all collections are deposited to a
centralized collection bank account and all disbursements are funded
through the same account, which is maintained in the Central Office of the
Union Bank of the Philippines and Philippine National Bank. Accordingly,
collections and disbursements of the Field Operating Departments (FODs)
are debited and credited, respectively, to Due Manila Office, a reciprocal
account.
This cash management policy is intended, among others, to efficiently
manage the cash in bank by properly establishing the cash position of the
Fund and by strengthening the monitoring and control of cash flows.
2.4
Cash equivalents
Cash equivalents are short - term and highly liquid investments with
original maturity of less than three months, are readily convertible into cash
and are subject to an insignificant risk of change in value. These include
special savings deposits and time deposits.
2.5
Contributions and premiums receivable
Pursuant to Section 3.1 of RA 8291, it is mandatory for all the covered
members of the GSIS to pay monthly contributions of 9% of the Monthly
Compensation (MC) for the member, and 12% of the MC, for the employer.
The premium contributions are remitted directly to the GSIS within the first
ten days of the month following the month to which the contributions apply.
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Based on the billing reports, premium contributions applicable for a month
are set-up in the books as Premiums Receivable at the end of that month,
simultaneously recognizing it as income for the period. Upon actual receipt
of remittances, the receivable amount is adjusted accordingly.
Premiums Receivable with arrearages beyond one year are periodically
reclassified to Other Non-current Assets.
2.6
Loans and accounts receivable
Loans and accounts receivable are stated at the outstanding balance
reduced by unearned income, and allowance for estimated uncollectible
accounts.
a.
Allowance/Provision for probable losses is established for estimated
losses on the principal portion of business loans and receivable
accounts based on evaluation of collectibility.
b.
Allowance for doubtful accounts/bad debts is established for
estimated losses on the interest portion of business loans and
receivable accounts.
On business loans, the level of allowance is based on the collateral
deficiency or the excess of the loan exposure (principal plus accrued
interest) over the fair value of the collateral.
Loans and receivable accounts which carry government guarantee
are not covered by the above provision.
For loan programs with interest rates that are computed in advance
(E-Card Cash Advance, Emergency Loan, Pension Loan, and
Emergency Loan Assistance), the interest for the full term of the
loans are capitalized and are correspondingly credited to Deferred
Income (Unearned Interest Income). This unearned income is reduced
whenever income is recognized in the books, which is during receipt
of actual collections.
2.7
Investments
Investments are classified in the following categories at initial recognition
based on the purpose for which they are acquired.
a.
Held for trading – stocks (HFT)
Stock investments are classified as held for trading if acquired
principally for the purpose of generating profit from short-term
fluctuations in price or dealer’s margin.
These are initially recorded at cost and are revalued at fair values
every balance sheet date. Any difference between the cost and the
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fair value is recorded as unrealized gain or loss in the income
statement of the current period.
b.
Held-to-maturity investments (HTM)
These are financial assets with fixed or determinable payments and
fixed maturities. They are carried at amortized cost using the effective
interest method and are classified as non-current assets. Investments
in Peso ROP Bonds are classified as Held to Maturity and as such,
these are recorded at cost, duly adjusted periodically through the
amortization of premiums or discounts.
c.
Available for sale (AFS)
Available–for–sale financial assets are acquired and held indefinitely
for long-term capital appreciation or are not classified as (a) loans and
receivables (b) held-to-maturity investments or (c) financial assets of
fair value thru profit and loss. They are included in the non-current
assets unless GSIS intends to dispose of the investments within 12
months of the balance sheet date.
d.
Investments in subsidiaries
The GSIS practices the equity method in accounting for investments
in shares of stocks in which it holds at least 20% ownership or where
it has the ability to exercise significant influence over the companies’
operating and financial affairs.
e.
Investments in non-traded stocks
Non-traded stocks are valued at cost, net of allowance for impairment
in value.
f.
Investments in mutual funds
This investment comprises the GSIS Mutual Fund which is currently
classified as a financial asset available for sale, under non-current
investment. It was originally classified as Investment in Subsidiary.
The GSIS Mutual Fund is an open ended mutual fund company,
essentially established by the GSIS in October 1994 with the objective
of providing its members with a vehicle to participate in the Philippine
capital market.
As of December 31, 2006, investments on GMFI used fair valuation
based on Net Asset Value (NAV) per share.
2.8
Property and equipment
These assets are recognized and recorded in accordance with the
requirements of PAS 16 on Property, Plant, and Equipment.
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Depreciation is computed in conformity with the provisions of COA Circular
No. 2003-007 dated December 11, 2003. The COA Circular provides the
revised estimated useful life in computing depreciation for government
property, and equipment effective January 1, 2004. The major changes
involve the following:
2.9

Depreciation is computed on a straight-line method based on the
estimated useful life of 20 to 30 years for buildings and a residual value
of 10% of the acquisition cost/appraised value thereof.

Prior to CY 2004, the salvage value for building was computed at 5% of
its cost while useful life is estimated at 50 years. For land
improvements, depreciation was computed at 5% residual value and
useful life of five years.

In October 2004, the above circular was amended by COA Circular No.
2004-003 which prescribe that the resulting adjustment from the change
in the depreciation computation shall be charged to the current
depreciation expense and that past depreciation expense need not be
adjusted.

Computer equipment is carried at cost less salvage value of ½ % of the
cost of the equipment. Depreciation is computed on a straight-line
method over estimated life of five years.
Investment property
Investment property pertains to land or a building or part of a building or
both, held to earn rentals or for capital appreciation or both.
These assets are comprised of real properties that were previously the
subject of a mortgage loan, individual real estate loan, commercial industrial loan, lease-purchase agreement, or a Deed of Conditional Sale
(DCS) which are either foreclosed or cancelled or dacioned by former
owners in favor of the Social Insurance Fund. These properties are
occupied and are charged rental fees.
Fair Value Model
The GSIS applies fair value model on its investment property, whereby the
assets are initially recorded at cost (consisting of the purchase price and
any directly attributable expenditures), then subsequently valued at fair
values.
Gains or losses from changes in fair values are recognized during the
period in which they arise. For the “Big Ticket “accounts, only 85% of the
gains on valuation are recognized. For Deeds of Conditional Sale (DCS)
accounts, gains on valuation are booked at 100%. Losses on valuation for
the Big Ticket accounts and the DCS accounts are recognized at 100%.
1616
An investment property is derecognized on disposal and the gain or loss is
recognized as income or expense in the income statement.
2.10
Non-current assets held for sale
These are assets acquired from foreclosed real estate property and
cancelled Deeds of Conditional Sales accounts which are presently
unoccupied and are held for sale.
These assets are measured at the carrying amount. Fair values are taken
up at the point of sale, whereby any excess of fair value over carrying value
is recognized as gain on valuation.
No depreciation is computed for these assets while they are classified as
held for sale.
2.11
Revenue recognition
The major sources of operating revenues of the Fund are the social
insurance premium contributions, dividends from investments, interest
income from loans, income from investment property and other income.
The GSIS accounts for its revenue using the accrual method. Generally,
accrued revenues from loans are computed using estimates determined by
management, based on past experiences and established trends in
collection.
a.
Social insurance loans (e.g., Salary Loan, Enhanced Salary Loan,
Restructured Salary Loan, Summer One Month Salary, Emergency
Loan, Emergency Loan Assistance, Policy Loan, eCard Cash
Advance) compute revenue using specific formulae based on the
interest rates of the loans. On actual collections, principal and interest
portions are determined by using estimated ratios.
Type of Loan
Interest Rate Used
in the Computation
of Accrued Interest
Estimated Ratios for the
Distribution of Collections
Principal
Interest
Salary Loan
12% /yr or 1%/mo.
73 %
27 %
Enhanced Salary Loan
12% /yr or 1%/mo.
73 %
27 %
Summer One Month Salary Loan
12% /yr or 1%/mo.
73 %
27 %
Conso- Loan
12% /yr or 1%/mo.
73 %
27 %
E-Card Plus Cash Advance
12% /yr or 1%/mo.
73 %
27 %
E-Card Cash Advance*
12% /yr or 1%/mo.
P138.89/mo
P50.00/mo.
Policy Loan
8% /yr or .67%/mo.
10%
90 %
Emergency Loan*
8% /yr or .67%/mo.
P416.67
P83.33
Pension Loan*
8% /yr or .67%/mo.
Actual distribution
Emergency Loan Assistance*
10% /yr or 83%/mo.
P416.67
1717
P83.33
* These are loan programs whose interests for the entire term of the
loan are computed in advance at the point of granting and made part
of the loan amortization, recorded as deferred or unearned interest
income. This unearned income is reduced whenever actual
collection is received, whereby income is recognized in the books.
* E-card Cash Advance has a fixed loan amount of P5,000 and fixed
monthly amortization of P188.89.
b.
On housing loans (Real Estate Loans and Deeds of Conditional
Sales), accrual of interest is computed using 10% average interest
rates applied on the estimated current portion of the principal amount.
These accruals are reversed during the following month by which time
information on actual principal and interest portions are already
available and consequently recorded in the books of accounts.
c.
Change in estimates
In 2005, current principal portions of REL and DCS loan accounts
were computed using the estimates of 47.76% and 20.67%,
respectively, applied on outstanding balances. In 2006, these
percentages were changed to 80%, uniformly applied on REL and
DCS outstanding balances.
The aforementioned change in estimates has not created any impact
on the income of the current period because of the procedural
reversals of the accruals during the following month. Only the yearend accrual of interest would cause an effect on the current income.
Since the year-end accrual in 2006 covered only the month of
December, the effect on income is material.
The change in estimates is justifiable since the rate of 80%
approximates more realistically the current principal portion of the
loans, based on the housing loan portfolio after considering the
cancelled DCS and foreclosed REL accounts.
The accrual method is not applied on the following:
1.
On business loans, if the outstanding balance exceeds the
current appraised value of the collateral
2.
On investments administered by the Fund Management Group,
if the arrearages already exceed six months’ amortization.
Previously, it has been the practice of the GSIS to accrue until
the arrearages shall have reached 24 months.
3.
Distribution of interest portion and the principal portion of the
housing loan is based on computerized distribution reports
generated by the in-house Information Technology Services
Group of the GSIS.
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2.12
Foreign currency transactions
a.
Functional and presentation currency
The financial statements are measured and presented using the
Philippine peso, which is the System’s functional and presentation
currency.
b.
Transactions and balances
Foreign currency income and expenses are translated into Philippine
Pesos based on the Philippine Dealing System Weighted Average
Rate (PDSWAR) exchange rate prevailing on transaction dates.
Foreign currency-denominated assets and liabilities are translated into
Philippine Pesos based on PDSWAR prevailing at the end of the
interim reporting period. At the end of the reporting year, foreign
currency - denominated assets and liabilities are translated to
Philippine Peso using the exchange rate provided by the Insurance
Commission.
Gain or Loss from foreign exchange transactions and revaluation of
foreign currency – denominated assets and liabilities are credited to or
charged against current operations.
2.13
Administrative loading
Pursuant to Section 35, RA 8291, the Fund is allowed to disburse a
maximum of 12% of the annual revenues from all sources for administrative
and operating expenses.
2.14
Actuarial reserves
Actuarial Reserve requirements for the mandated obligations of the System
are computed monthly by the GSIS Actuarial Group based on certain
assumptions which are in accordance with generally accepted principle of
actuarial valuation.
The actuarial reserves are set up/ appropriated out of the Surplus
representing the accumulated earnings of the Social Insurance Fund.
2.15
Accrual of employee benefits
As first time adoption of PAS 19, the System has recognized in its books
liabilities for employee benefits as of December 31, 2006, specifically the
accumulating compensated absences, or the accumulated annual leaves
and sick leaves which have been unused or unavailed by the employee
during the period of entitlement.
1919
2.16
Claims and benefits
Regular disbursements of the Social Insurance Fund comprise the claims of
qualified members involving the following:




Life insurance benefits claims which consist of policy maturities, cash
surrender values, disability benefit, death benefit, accidental benefit,
accidental death benefit, and funeral benefits.
Retirement Claims
Monthly Survivorship Pension
Monthly Annuity Pension
Generally, retirement claims (from all regular and eligible member-retirees,
who are aged 60 at the time of retirement) are paid under RA 8291, which
provides for the payment of a five-year lump sum benefit plus an old age
pension payable monthly for life; or cash payment equivalent to 18 months
of basic monthly pension, plus basic monthly pension for life payable
immediately without five-year guaranty.
2.17
Non-admitted assets
Pursuant to Section 179 of the Insurance Code, certain assets are not
allowed as admitted assets, hence, are presented as Non-admitted Assets.
These are furniture, fixtures and equipment; deposit and indent orders;
supplies and materials in stock; prepaid expenses; income receivable; and
such other assets proven to be of doubtful value.
Income Receivable consist of accrued interests on obligations of DBM and
other government agencies for unpaid and/or delayed remittances of social
insurance premiums and housing loan amortization/Rental Receivable
which are credited to Deferred Income, as recommended by Commission
on Audit. Since collection thereof is very low and the receivables are not
readily realizable, the same were classified from admitted to non-admitted
assets and the corresponding Deferred Income was reduced.
Only the carrying value of the furniture, fixtures and equipment are reported
as Non-admitted Assets.
3.
TRANSITION TO PFRS
The transition to PFRS resulted in certain changes in the System’s previous
accounting policies, referred to in the succeeding tables as “previous Generally
Accepted Accounting Principles (GAAP)”.
The effects of the transition in figures are presented in specific balance sheet and
revenue accounts, resulting from the adoption of PAS 39 (Financial Instruments:
Recognition and Measurement), PAS 32 (Financial Instruments: Disclosure and
Presentation), PAS 19 (Employee Benefits), and PAS 16 (Property, Plant and
Equipment).
2020
Under previous GAAP, foreclosed housing units from REL and cancelled DCS
awards have been presented and recognized as acquired assets at carrying values
and lumped in one classification of acquired assets, whether these assets are
occupied or not.
Under PFRS, the acquired assets are no longer presented in the balance sheet as
such, but instead are recorded either as investment property or non-current asset
held for sale.
Since this kind of recognition under PFRS is a first time adoption by the System in
2006, the PFRS effects, on investment property and non-current assets held for
sale due to fair values applied on the assets, are summarized below:
Non-Current
Assets
Held for Sale
Investment
Property
PFRS, 12/31/06
P17,439,098,727
Total
P 5,469,635,160 P 22,908,733,887
Balances before
Transition to PFRS
16,217,797,818
3,031,695,405
19,249,493,223
Transition Effects
(due to valuation)
P 1,221,300,909
P 2,437,939,755
P 3,659,240,664
Investment property
Acquired assets which are currently occupied and from which the System derives
rental income and acquired assets which are being held by the System for
potential appreciation in the future are recognized as investment properties; under
PFRS, these assets are recorded by the System initially at cost and subsequently
at fair values. Net gains amounting to P1.2 billion resulted from the PFRS
transition. Out of this amount, P789.6 million, increased current income and the
remaining P431.6 million increased Surplus, as prior years’ income.
Effect of
Transition to
PFRS
Previous GAAP
Foreclosed REL
(Acquired assets)
Cancelled DCS
(Acquired assets)
Other Investments
(Big tickets accounts)
Total
P
29,007,010
P
10,938,322
PFRS
P
39,945,332
11,948,314,883
(2,110,493,749)
9,837,821,134
4,240,475,925
3,320,856,336
7,561,332,261
P 16,217,797,818
P 1,221,300,909
P17,439,098,727
Non-current assets held for sale
Adopting the PFRS, the System classified its acquired assets which are not
occupied and, therefore, not generating rental income as non-current assets held
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for sale. These assets are recorded at their carrying values (less cost to sell).
Unlike the investment properties, there is no transitional valuation effect reflected
in the financial statements. The effect of PFRS is only in the presentation of the
assets in the Balance Sheet.
Employee benefits
The System’s adoption of PFRS resulted the recognition of a transitional liability on
employees’ benefits comprised of the accumulated compensated absences, or the
accumulated annual leaves and sick leaves which have been unused or unavailed
of by the employees during the period of entitlement.
The transitional liability as of December 31, 2006, for employee benefits amounted
to P522,239,817 computed as follows:
Home Office
Current Year – 2006
P
Prior Years
Total
54,071,884
Field Office
P
250,553,678
P
304,625,562
37,472,779
Total
P
180,141,476
P
217,614,255
91,544,663
430,695,154
P
522,239,817
Under previous GAAP, the liability of the System pertaining to employees’
accumulated compensated absences was never determined and recognized.
Under the PFRS, the System’s liability was increased by P522,239,817; current
income decreased by P91,544,663 because of the recognition as expense payable
for the current portion; and, surplus account decreased by P430,695,154 in
recognizing prior year’s liabilities. These changes are illustrated in tabular form as
follows:
Accounts Affected
Sundry Accounts
Payable
Effects of
Transition to
PFRS
Previous GAAP
P 1,771,487,884
P
PFRS
522,239,817
P 2,293,727,701
Net Operating
Revenues
39,480,719,545
(91,544,663)
39,389,174,882
Surplus
11,755,808,390
3,300,294,724
15,056,103,114
2222
4.
CASH AND CASH EQUIVALENTS
This account consists of the following:
Particulars
2006
Cash on hand
Cash in banks
(includes special savings deposits and
time deposits amounting to P28.3 billion in
2006 and P7.923 billion in 2005)
Total Cash and Cash Equivalents
5.
P
2005
118,351,527 P
661,300,221
30,046,689,048
5,310,761,345
P 30,165,040,575
P 5,972,061,566
LOANS - NET
The total loans financed by the Social Insurance Fund consist of the following:
Particulars
2006
Enhanced salary loans
P
2005
57,698,673,225 P
57,769,825,005
Policy loans
14,379,810,247
12,846,231,984
Real estate loans
10,999,256,475
11,150,602,073
Government loans
6,293,879,124
7,912,757,213
Summer one month
4,766,360,226
6,538,988,375
Private loans
4,360,786,061
3,547,858,384
eCard cash advance loan (net)
2,658,073,123
4,156,309,904
Deeds of conditional sale
2,309,193,280
3,737,873,833
Emergency / calamity loans (net)
1,514,276,713
1,001,644,125
Emergency loan assistance (net)
1,390,270,687
2,267,785,415
Pension loans (net)
1,036,716,129
861,667,030
Lease purchase
427,708,035
428,123,251
Government guaranteed loans
350,000,000
350,000,000
Conso – loans
265,364,544
Stock purchase loans
47,051,176
eCard plus cash advance loans
42,670,000
Educational assistance loans
34,104,585
Total Loans - Net
45,068,842
34,683,925
P 108,574,193,630 P 112,649,419,359
The outstanding balances of the e-Card Cash Advance Loan, Emergency/Calamity
Loans, and Emergency Loan Assistance accounts are shown net of their
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respective unearned income amounting to P1,216,943,757, P206,337,601 and
P189,458,446, respectively.
Conso-loan
Conso-loan is a new loan window offered by the GSIS in October, 2006. Otherwise
known as the GSIS Consolidated Salary Loan Plus, this loan program consolidates
all the existing loans of a member under one account through the full liquidation of
the outstanding balances of these loans, as follows:





Salary loan
Restructured salary loan
Enhanced salary loan
Emergency loan assistance
Summer one-month salary loan
The salient features of the Conso-loan include the following:




Interest rate is 12% effective, based on diminishing balance.
Maximum loanable amount is equivalent to ten months of basic salary
Maximum repayment period is six years
Penalties and surcharges on current arrearages of the existing loan balances
are waived, once the loan is approved.
As of December 31, 2006, there are about 2,100 members who have availed
themselves of the Conso-loan.
E-card Plus cash advance (eCAP)
The eCard Plus Cash Advance launched in October 2006 is basically the same
features as the eCard Cash Advance of 2004, except that the loanable amount for
the eCAP is P10,000 instead of P5,000 and the interest is 12% effective, based on
a diminishing balance instead of computing in advance.
Discrepancies of subsidiary ledgers and the general ledger
Discrepancies noted between the subsidiary ledger balances of the loan accounts
and those of the general ledger as of December 31.2006 are set to be corrected by
the implementation of the Integrated Loans, Membership, Acquired Assets, and
Accounts Management System (ILMAAAMS), which is expected to run during the
second half of CY 2007.
6.
INVESTMENTS
The current investments amounts to P76.49 billion, composed of treasury bills and
loans from local government units with maturities within twelve months of balance
2424
sheet date and stocks held-for-trading, as follows:
Particulars
2006
Current Investments
Held-for-trading –
Foreign currency –
denominated ROP
notes and bonds
ROP bills
Held-for-trading - stocks
Government loans
P 50,878,530,455
22,803,909,431
2,808,024,936
1,998,610
Total Investments
P 76,492,463,432
2005
P
8,831,272,168
4,301,590,930
11,881,579
P 13,144,744,677
The non-current investments amounts to P80.5 billion composed of the following:
Particulars
2006
2005
P 44,870,675,983
P 94,255,095,304
Available for sale - stocks
30,408,764,787
29,193,364,819
Investment in mutual fund
1,814,130,133
973,910,869
Stock -subsidiaries
956,688,149
781,275,133
Investments in joint venture
977,065,177
981,795,374
Stocks-non-traded
918,289,043
934,783,384
Asset participation certificates
551,600,000
561,600,000
Corporate bonds
6,650,000
112,495,138
Commercial papers
-
449,916,222
ROP notes and bonds
Total Non-Current Investments
P 80,503,863,272
P 128,244,236,243
Foreign-currency denominated ROP bonds in the total amount of P50.9 billion are
reclassified from Available for Sale (AFS) to Financial Assets at Fair Value through
Profit or Loss (FVPL). The reclassification is due to the change in Management’s
intention/strategy from holding these securities for a longer period to short-term
profit taking.
Philippine debt papers are among the best performing bonds in 2006 as a result of
sustained fiscal improvement of the country and credit rating upgrade possibilities.
The bullish outlook in the emerging market, including the Philippines started in
2005. Management took advantage of the surge in bond prices to realize gains by
selling these securities. Also, the correction in the middle of 2006 caused by the
apprehension in unit investment trust funds (UITFs) this time, presented an
opportunity for Management to buy back ROP bonds.
Based on this actual trading behavior, the System has deemed it appropriate to
reclassify foreign-currency denominated ROP bonds from Available for Sale (AFS)
to Financial Assets at Fair Value through Profit or Loss (FVPL).
2525
As of December 31, 2006, the exchange rate provided by the Insurance
Commission, per its Circular Letter No. 2-2006 dated January 13, 2007 was
P49.1320 to $1.00.
6.1
Investment in subsidiaries
Investments in shares of stocks in which GSIS holds at least 20%
ownership or where it has the ability to exercise significant influence over
the companies’ operating and financial affairs are accounted for under the
equity method. Under this method, the investment is initially recorded at
cost but subsequently increased by the investor’s equity share in net
earnings or decreased by the net loss, inclusive of dividends received, and
extraordinary items and prior period adjustments of the investee/subsidiary.
Particulars
2006
GSIS Family Bank
P 673,470,938
GSIS Properties, Inc
National Reinsurance Corporation
Worldwide Investments Co.
Meat Packing Corporation of the Philippines*
Total Investment in Subsidiaries
2005
P 605,602,356
74,739,593
70,518,766
207,077,618
103,754,011
1,400,000
1,400,000
P 956,688,149
P 781,275,133
*Meat Packing Corporation of the Philippines
Meat Packing Corporation of the Philippines (MPCP) is a wholly owned
subsidiary of the GSIS. As of beginning of CY 2006, MPCP had a carrying
value of P56.3 million. During the year, equity share in losses amounting to
P78.9 million was taken up in the books and has reduced the carrying cost
to zero.
In December 31, 2004, MPCP reflected in its Balance Sheet an Appraisal
Surplus–Land in the amount of P810,126,865 and disclosed in its Notes to
Financial Statements the unrecorded appraised value of the land,
machinery and equipment in the amount of P4,286,370,000. These assets
were appraised by an independent firm of appraisers in August of 1997.
COA has rendered a disclaimer of opinion on the CY 2004 financial
statements due to uncertain status of operations of a significant segment
of the MPCP.
2626
7.
OTHER CURRENT ASSETS
The Other Current Assets account includes the following:
Particulars
Income receivable
2006
2005
P 20,971,698,311
P 17,433,795,447
Notes receivable
1,625,388,329
Sundry accounts receivable
583,163,568
1,013,994,602
16,634,116
16,634,116
Cash advances
4,859,779
1,893,737
Rental receivable
-
Advances to contractors
Total Other Current Assets
8.
-
20,893,491
P 23,201,744,103
P 18,487,211,393
PROPERTY AND EQUIPMENT - NET
The Property and Equipment account consists of the following:
Particulars
Land and
Land
Improvements
Real
Estate
Appreciation
Building and
Improvements
Technology
(IT)
Resources
Construction in
Progress
Total
Cost:
January 1, 2006
Add:
Additions
Adjustments
Valuation
Less:
Derecognition in books
(H.O. = due to
donations/sale)
(F.O. = due to transfers
to HO)
December 31, 2006
Accumulated
Depreciation
January 1, 2006
Add:
Depreciation Charges
during the year
Less:
Derecognition in the
books – (due to
donations/sale of
unserviceable units)
December 31, 2006
P484,546,124 P3,726,759,791
20,200,000
1,941,116
P9,318,045 P1,481,704,612 P41,219,421 P5,743,547,993
135,484,504
-
-
-
-
-
-
60,608,800
-
-
(9,394,197)
(4,981,616)
223,297,703
(3,040,500)
-
60,608,800
-
(9,394,197)
3,862,244,295
184,316,579
864,408,197
-
888,838,478
-
1,937,563,254
749,131
158,913,780
-
174,453,102
-
334,116,013
-
(176,980,180)
-
(176,980,180)
-
886,311,400
-
185,065,710
-
1,023,321,977
1,539,923,614
-
506,687,240
-
69,926,845
67,613,199
36,237,805
6,015,019,799
2,094,699,087
Net Book Value –
December 31, 2006
P321,621,530 P2,838,922,318 P69,926,845 P
653,612,214 P36,237,805 P3,920,320,712
Net Book Value –
December 31, 2005
P299,836,279 P2,825,542,360 P 9,318,045 P
568,147,984 P41,219,421 P3,744,064,089
2727
9.
INVESTMENT PROPERTY
The Investment Property account consists of the following:
Particulars
Cancelled deeds of conditional
sale (Mass Housing)
2006
2005
P 9,837,821,134
P 16,353,358,267
7,561,332,261
4,240,475,925
39,945,332
12,131,030
P 17,439,098,727
P 20,605,965,222
Other investment property
Foreclosed real estate loans
Total Investment Property
10.
NON-CURRENT ASSETS HELD FOR SALE
Non-current Assets Held-for-Sale account consists of the following:
Particulars
2006
Cancelled deeds of conditional sale (Mass
Housing)
P 5,462,305,191
Foreclosed real estate loans
P
344,623,145
7,329,970
Total Non-Current Assets Held For Sale
11.
2005
P 5,469,635,161
1,392,608
P
346,015,753
OTHER NON-CURRENT ASSETS
The Other Non-current Assets account is broken down as follows:
Particulars
2006
2005
Contributions/Premiums receivable
Notes receivable
Income receivable
Other receivable-agencies w/ MOA
Accounts receivable for deficit cases
Contingent asset disallowance
Sundry accounts receivable
Other asset-land
Paintings and tapestries
Other asset-building
P 10,231,494,561
6,529,843,083
4,334,148,384
3,886,626,801
327,012,794
97,055,231
51,422,156
17,907,489
16,216,867
2,975,410
P
Total Other Non-Current Assets
P 25,494,702,776
P 18,374,417,145
2828
6,883,806,774
4,618,066,302
6,023,600,543
318,980,559
92,540,624
49,719,472
337,514,931
16,216,867
33,971,073
12.
NON-ADMITTED ASSETS
Pursuant to Section 197 of the Insurance Code, certain assets are not allowed as
admitted assets. Hence, these are presented as Non-admitted Assets, consisting
of the following:
Particulars
2006
Income receivable
P 38,014,370,249
Rental receivable
4,871,916,468
Contributions and Premium receivable
1,192,019,430
P 37,943,888,977
-
Prepaid expenses
401,715,515
2,712,149
Furniture, equipment, and fixtures
382,172,139
403,941,999
Loans and investments
327,263,363
327,263,363
Non-admitted assets-others
262,365,151
287,741,615
Suspense account
102,447,198
102,447,198
Medicines and other medical supplies
26,323,094
Supplies and materials in stock
25,822,242
35,255,578
Deposit and indent orders
15,272,423
15,943,185
Educational assistance loan
7,257,409
7,283,764
Contingent asset- deficit cases
6,824,926
7,743,192
P 45,635,769,607
P 39,134,221,020
Total Non-admitted Assets
13.
2005
-
CLAIMS AND BENEFITS PAYABLE
Retirement and Life Insurance Claims Payable account pertains to the claims on
retirement and life insurance benefits, applications for which were already filed with
the System but are still unpaid as of year-end broken down as follows:
Particulars
Life insurance claims
Retirement claims
Home Office
Field Offices
Total
P 293,000,263 P 553,976,185 P 846,976,448
60,148,932
409,131,231
469,280,163
9,176,073
149,388,445
158,564,518
Survivorships
179,643
4,649,378
4,829,021
Disability, funeral, annuities
-
879,353
879,353
Beginning balance, remaining
Various checks for replacement
Total Claims and Benefits Payable
44,802,546
-
44,802,546
P 407,307,457 P1,118,024,592 P1,525,332,049
2929
14.
NON-CURRENT LIABILITIES
The account pertains to Leasehold Liabilities arising from the lease–purchase
agreement between the GSIS and Questronix Corporation which started in June
2002. Specifically, the agreement involves the upgrade of the Mainframe Disk drive
of the GSIS. Per agreement, the GSIS has the option to purchase the hardware at
the end of the term (which is 36 months) for P500.
15.
DEFERRED CREDITS
Deferred Credits account consists of the following:

Deferred income arising from accrued interests on obligations of DBM and
other government agencies for unpaid and/or delayed remittances of social
insurance premiums and housing loan amortizations. These are booked as
Accrued Income Receivable and are credited to Deferred Income, as
recommended by the Commission on Audit. Since collection thereof is very low
and the receivables are not readily realizable, the same were classified from
admitted to non-admitted assets, and the corresponding deferred income was
reduced. The income will be recognized in full in the year of collection.

Non-current Interests Receivable from housing loan accounts covered by
Deeds of Conditional Sale which have been cancelled

Undistributed Collections - are those collections which could not be properly
classified at the time of collection.
The Deferred Credits balance includes the following:
Particulars
Deferred income
2006
P
Unrealized profits
63,644,638
2005
P
312,821,639
Undistributed collections
48,582,670
-
9,598,808
12,963,939
Unearned interest
-
647,965,560
Unearned premiums
-
5,693
Total Deferred Credits
P
3030
386,065,085
P
709,517,862
16.
RESERVES
A comparison between the actuarial reserves requirements and the actual financial
reserves is shown as follows:
Particulars
Old age benefits
2006
P 242,558,615,486 P 217,498,732,614
Policies in force
48,295,505,681
51,505,694,842
Survivorship benefits
47,033,575,059
33,871,170,841
Disability benefits
12,744,076,167
9,664,085,937
Burial benefits
2,858,321,880
2,510,319,994
Contingencies
1,734,107,335
1,797,855,127
355,224,201,608
316,847,859,355
Actuarial Reserve Requirement P355,224,201,608
P316,847,859,355
Actual Financial Reserves
17.
2005
SURPLUS
The Surplus account of the SIF consists of the current net revenues, the
accumulated net earnings of prior years reflected in the Unassigned Surplus, as
well as other income such as the (1) the Appraisal Surplus, which pertains to
income coming from appraisal of real properties (2) Donation Surplus, for donated
assets (3) Unrealized Gain or Loss, from the fair valuation of Financial Assets
Available for Sale, and (4) Contingent Surplus on Disallowances.
Claims paid in 2006 pertaining to 2005 and prior years which could no longer be
segregated with respect to their year of incurrence due to volume of transactions,
are treated as surplus adjustments of CY 2005.
18.
FEES AND COMMISSIONS
The Social Insurance Fund, being the administrator of the General Insurance Fund
(GIF) which consists of the General Insurance business, Optional Life Insurance
(OLI) business, and Pre-Need (PN) business, charges the latter fund administration
fee and marketing commissions, as follows:

10% Administration Fee based on the three Businesses’ respective gross
income

20% Marketing Commission based on gross premium earned of the GI and the
OLI businesses.

10% Management fee on Employees Compensation Insurance Fund premium
collections
3131
The above fees are reported under ‘GSIS Fees and Commission in the Statement
of Revenues and Expenditures of the SIF under Miscellaneous Revenues
(Schedule II). The fees are considered as charges to the current operation of the
Administered Funds.
19.
CASH DIVIDENDS DECLARED
The GSIS Board of Trustees under Resolution No. 161, dated November 8, 2006,
declared an annual cash dividend in the total amount of P857 million for CY 2006,
chargeable against the surplus of the Social Insurance Fund.
These are distributed to Compulsory Life Insurance Policy Holders, under the
following conditions:

All active members including the members of the Judiciary and Constitutional
Offices whose life insurance coverage have been in force for at least one year
as of December 31, 2005 and are still active as of June 30, 2006.

The following are not entitled to the dividends:
 Terminated compulsory life insurance coverage’s in 2005;
 Active members who have defaulted in their member–loans and/or premium
payments for at least six consecutive months prior to June 30, 2006; and
 Lapsed policies or policies whose indebtedness is equal to or greater than
cash surrender value as of June 30, 2006.
20.
ADMINISTRATIVE LOADING
For CY 2006, the administrative loading of the Fund is 7.08% which is well below
than the allowable limit of 12%.
21.
EXEMPTION FROM TAX
Pursuant to Section 39 of RA 8291, the GSIS, its assets, revenue including all
accruals thereto, and benefits paid are exempted from all taxes, assessments,
fees, charges or duties of all kind.
22.
CONTINGENT LIABILITIES
There are lawsuits and claims against the GSIS that are either awaiting decisions
by the courts or are subject to settlement agreements. In the opinion of its legal
counsels, the contingent liability or loss arising there from, under the Social
Insurance Fund amounts to at least P725 million. Reserve for Contingencies has
been increased by the same amount.
3232
Additional Reserve for Contingencies
Reserve for Cases involving the Administration Group
1) Ibex International, Inc. v. GSIS
2) Diego Agote, et al v. PAPI
3) GSIS v. LSWA, Daniel Fanila, et al
Amount
P 13,941,664
13,500,000
129,500
27,571,164
Reserve for Cases involving the Field Operations Group
4) C.C. Fiel Enterprise, Inc. v. GSIS, et. al
5) Melchor Arboleda v. GSIS
6) Heirs of the late Enrique and Felisa Lentija v.Enrique and Elena
Diola, GSIS, Jovita Ancog and R/D-Tagum
7) Daymiel v. GSIS
8) Rasad R. Ibrahim v. GSIS, rep by BM of CDO and Butuan
9) Dy Teban Hardware v. R. Tuazon and GSIS
10) Brenda Primo v. GSIS, et.al.
11) Hermilo P. Baranda v. GSIS Ramon Lim and Ma. Elena Loresto
12) Emelita Pacudan and Concepcion Gotiamco v. GSIS and
Sps. Manuel and Isabelita Borres
13) Delilah Gantang v. GSIS
14) Ronnie Gargolis et al v. Nelson Lee, GSIS, et al
15) Isabel N. Alabado v. GSIS
8,480,000
2,500,000
2,189,000
1,260,000
1,152,000
1,000,000
249,269
197,500
100,000
36,500
35,280
25,000
17,224,549
Reserve for Cases Involving the Housing and Real Prop. Dev. Group
16)
17)
18)
19)
20)
21)
22)
23)
24)
25)
26)
27)
28)
29)
30)
31)
32)
33)
34)
GSIS v. Eduardo Santiago, etc.
Leonito Almeda et al v. GSIS
GSIS v. Queen’s Row Subdivision, Inc.
GSIS v. City Treasurer and City Assessor of Manila
Bengson Commercial v. GSIS
Fantasia Filipina Resort v. GSIS, et al
GSIS v. OP and Jennifer Emano Bote
Salvador Housing and Dev. Corp., et al v. Juan “Bong” Lim et al
GSIS v. Marlito Villanueva, Chanelay, et al.
Felisa L. Pena v. GSIS
Mercator Finance Corp. v. GSIS
Nandeshi Const. & Dev. Corp. v. San Lorenzo Realty and GSIS
Pearlito Campanilla v. GSIS and NSJBI
Group Management Corp v. Lapu-Lapu Dev. and Housing Corp.
LGTM Corp. v. GSIS
GSIS v. OP and Janim Barrozo
GSIS v. Hon. Fabros, etc. and Francisco dela Merced, et al
Jose Umali, et al v. GSIS
GSIS v. Gonzalo and Matilde Deang
399,828,000
78,000,000
73,100,000
53,000,000
31,000,000
21,801,663
10,000,000
4,500,000
2,474,097
2,000,000
1,700,000
1,180,000
969,543
385,639
252,000
200,000
50,000
45,000
35,000
680,520,942
Total Contingent Liabilities/Additional Reserve for Contingencies
3333
P725,316,655