Fuzzy record-keeping

For a fund that handles P1.7 trillion in assets, the Government Service Insurance System (GSIS) has a dangerously confusing financial record.

Based on a 2023 Commission on Audit (CoA) report, a portion of the life insurance component of changes in the Insurance Contract Liabilities (ICL) of the state firm, due to a discount rate of P88.7 billion, was presented in the expenses section of the profit or loss statement instead of being placed under Other Comprehensive Income (OCI).

CoA commented that Paragraph 15 of Philippine Financial Reporting Standards (PFRS) 4 required such financial recording, and thus GSIS misstated the ICL, which measures the obligations of the agency to its members.

Paragraph 15 of PFRS 4 provided that an insurer shall assess, at each reporting date, whether its recognized insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts.

If that assessment showed that the amount of the ICL is inadequate in light of the estimated future cash flows, the entire deficiency shall be recognized in the profit or loss statement.

The above provision can be interpreted to mean that the deficiency being recognized in the profit or loss refers to the estimated future cash flows, which correspond to assumptions and not the effects of discounting.

An Insurance Commission Circular Letter sets the financial framework for all life and non-life insurance companies doing business in the Philippines. It provided that: “Changes in life insurance policy reserves brought by changes in interest rates shall be recognized under Remeasurement on Life Insurance Reserves.”

The audit disclosed that the life insurance component of the said changes is improperly presented as an expense in the profit or loss, instead of remeasurement on ICL under OCI.

GSIS’ response was that the determination of the life insurance component of the Changes in ICL, due to changes in the discount rate, may be challenging and will take some time as it would perform reruns of the existing data set, identify each asset portfolio applicable to life insurance and the corresponding rate of return thereof, which will serve as the basis in determining the appropriate discount rate.

It should have crunched the numbers correctly earlier as a financial institution.

The skewed recording affected the fair presentation of accounts in the financial statement, according to CoA.

Intended or not, the lack of integrity in GSIS records is a disservice to its 2.7 million state worker members who are reliant on government bookkeeping to determine their financial security.