LETTER OF INSTRUCTIONS NO.

596

AUTHORIZING THE ARMED FORCES OF THE PHILIPPINES MUTUAL BENEFIT

ASSOCIATION, INCORPORATED TO ENGAGE IN NON-LIFE INSURANCE

TO : The Insurance Commissioner

PPL Building, United Nations Avenue
Metro Manila

WHEREAS, the Armed Forces of the Philippines Mutual Benefit Association,

Incorporated (AFPMBAI) has been performing services vital to the morale and welfare
of the AFP members and the Integrated National Police (INP) and their families by
providing death benefits under its basic insurance coverage and special group term
insurance provided for by PD No. 352 as well as optional insurance and other benefits;

WHEREAS, it is necessary that the AFPMBAI be granted additional powers to

enable said entity to engage in activities which will provide additional benefits to AFP
members;

WHEREAS, an activity in which the AFPMBAI may engage in is by providing

non-life insurance coverage that will be limited to the properties of the AFP and the
members of the AFP and INP;

WHEREAS, under the letter order of the Chief of Staff, AFP and Presidential LOI
No. 333, the AFPMBAI was placed under the management, operation, and control of
the Chief of Staff, and has been operating as an integral part or unit of the AFP;

WHEREAS, the AFPMBAI as a mutual benefit association authorized to engage

in life insurance may not be eligible for a license as a non-life insurance company under
the Insurance Code.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,

by virtue of the powers in me vested by the Constitution, do hereby direct the issuance
of a license the AFPMBAI to engage in non-life insurance business that will be limited to
the properties of the AFP and the members of the AFP and INP, which shall be in
addition to the powers now exercised by the said entity under its license as a mutual
benefit association and that the issuance of such license shall be subject to the
conditions provided for under the Insurance Code with respect to insurance
corporations for the licensing of non-life companies.

Done in the City of Manila, this 9th day of September, in the year of Our Lord,
nineteen hundred and seventy-seven.
 LETTER OF INSTRUCTIONS NO. 333

TO : The Chief of Staff, AFP

Camp General Emilio Aguinaldo
Quezon City

WHEREAS, the Armed Forces of the Philippines Mutual Benefit Association,

Incorporated (AFPMBAI), performs welfare services vital to the morale of the Armed
Forces of the Philippines since it has been authorized to manage governmental funds,
particularly, those provided for under Presidential Decree No. 352, dated December 22,
1973, intended to provide insurance coverage for military personnel; and

WHEREAS, the Chief of Staff, Armed Forces of the Philippines, being primarily
responsible for the morale and welfare of Armed Forces personnel, and for reasons of
military necessity, had issued on June 19, 1973 Letter of Instructions creating a
Committee to take over the management, operation and control of the AFPMBAI, in
order to protect the interest of the members thereof;

NOW, THEREFORE, I, PRESIDENT FERDINAND E. MARCOS, pursuant to

Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated
September 22, 1972, as amended, do hereby order you, to:

1. Continue the management, control and operation of the Armed Forces of the
Philippines Mutual Benefit Association, Incorporated; and,

2. Institute such reforms as may be necessary to improve further the

management and operation thereof, including the weeding out or punishment of
undesirable officers and employees thereof on the grounds provided for by pertinent
laws, including dishonesty, incompetence or misconduct.

Done in the City of Manila, Philippines, this 6th day of November in the year of
Our Lord, nineteen hundred and seventy-five.
 REPUBLIC ACT NO. 656

AN ACT TO CREATE AND ESTABLISH A "PROPERTY INSURANCE FUND" AND TO

PROVIDE FOR ITS ADMINISTRATION AND FOR OTHER PURPOSES

Section 1. This Act shall be known as the "Property Insurance Law."

Section 2. In order to indemnify or compensate the Government as defined in this Act for any
damage to, or loss of, its properties due to fire, earthquake, storm, or other casualty there is
hereby established the "Property Insurance Fund", which shall consist of all moneys resulting
from the liquidation of the insurance constituted in section three hundred forty of the Revised
Administrative Code and from premiums and other incomes.

Section 3. For the effectuation of the purpose of this Act, the administration of the Fund is
hereby placed under the Government Service Insurance System with powers and authority to
reinsure with private insurance companies under such terms and conditions that may be
mutually agreed upon any excess risk it may deem advisable; to prescribe necessary rules and
regulations, including such incidental powers as are necessary for its operation; and to appoint
personnel, who are certified as eligibles by the Civil Service, prescribe their duties, and fix their
remuneration. Section fifteen of Commonwealth Act Numbered One hundred eighty-six shall not
be applicable to the personnel of the Fund.

Section 4. Definitions. For the purposes of this Act

(a) "System" means the Government Service Insurance System created under
Commonwealth Act Numbered One hundred and eighty-six.

(b) "Fund" means the "Property Insurance Fund" created under this Act.

(c) "Property" includes vessels and craft, motor vehicles, machineries, permanent buildings,
properties stored therein, or in buildings rented by the Government, or properties in transit.

(d) The word "Government" as used in this Act refers to the National, provincial, city, or
municipal government, agency, commission, board or enterprises owned or controlled by the
Government.

(e) "Disposable Surplus" means the amount left after the necessary insurance reserves and
other reserves have been set aside together with the expenses incidental to the administration
of the Fund.

Section 5. Every government, except a municipal government below first class, is hereby
required to insure its properties, with the Fund against any insurable risk herein provided and
pay the premiums thereon, which, however, shall not exceed the premiums charged by private
insurance companies: Provided, however, That the System reserves the right to disapprove the
whole or a portion of the amount of insurance applied for: Provided, further, That such property
or part thereof as may not be insurable or acceptable for insurance may be insured with any
private insurance company. A municipal government below first class may upon application
insure its properties in the Fund under such rules and regulations as the System may prescribe.
Section 6. Collection and payment of premiums. (a) In accordance with such rules and
regulations as the System may prescribe under section three of this Act, the premiums on
insurance under section five hereof shall be paid in advance to the System by the government
concerned.

(b) Penalties. Any cashier, treasurer, or any government official responsible for the
collection and/or remittance of the premiums hereinabove prescribed, who refuses or habitually
neglects to comply with the instructions of the System and to collect or accept payments of the
said premiums, issue receipts therefor, and/or remit the same within the time prescribed by the
System, shall be held liable for the payment of said premiums and shall pay to the System a fine
of two per centum per month of said premiums from their due dates until received by the
System.

Section 7. (a) There shall be collected, classified, analyzed, and kept under the custody of the
System such statistical data as may be necessary for the proper determination of risks and
rates of premiums for the issuance of properties herein defined.

(b) The records and accounts of the Fund shall be kept separate and distinct from those of
other funds of the System.

(c) During the month of October of each year, the System shall submit to the President a
report of the operations of the Fund during the preceding year.

Section 8. The Auditor General and the Government Corporate Counsel shall be the ex-officio
auditor and legal adviser of the Fund, respectively. The Auditor General, or his authorized
representative, shall submit to the System soon after the close of each fiscal year audited
statements showing its financial condition and progress for the fiscal year just closed and the
actuary shall likewise make an actuarial examination and valuation of the fund.

Section 9. Any disposable surplus that may result from the operation of this Fund once
declared by the System shall be apportioned in accordance with the schedule approved by the
System among the governments whose properties are insured in the Fund.

The Government of the Republic of the Philippines hereby guarantees the fulfillment of the
obligations of the Fund when and as they shall become due.

Section 10. Upon approval of this Act, the System shall require the inventory of the property
belonging to each government, determine the value thereof for purposes of insurance, and
advise the government concerned of the total premiums each shall pay to the Fund. The
government concerned shall, upon receipt of advice from the System, set aside from any
savings in its appropriation the amount needed for such premiums and certify to the availability
thereof, and the Auditor General or his duly authorized representative shall forthwith release the
same to the credit of the System by means of a journal voucher drawn for the purpose.
Thereafter, the official concerned shall remit it to the System immediately: Provided, That the
premiums corresponding to the insurance of properties belonging to an entity operated with a
special fund shall be payable from said fund; otherwise, from the general fund.

Section 11. Each government as defined herein shall include in its annual appropriation the
amount necessary to cover the premiums for the insurance of its properties during each fiscal
period and remit the same immediately to the System as provided in section ten hereof.
Section 12. Chapter sixteen of the Revised Administrative Code, as amended, is hereby
repealed, and all the present assets and liabilities of the Property Insurance Fund created
thereunder shall be liquidated upon approval of this Act and turned over to the System. The
Auditor General and the Commissioner of the Budget or their authorized representative shall
carry out the provisions of this section: Provided, That the properties insured under the Property
Insurance Fund shall continue to be governed by existing law until they shall have been insured
anew with the fund under the provisions of this Act.

Section 13. This Act shall take effect on the first day of the third calendar month following that
of its approval.

RESIDENTIAL DECREE No. 245 July 13, 1973

AMENDING SECTION THREE OF REPUBLIC ACT NUMBERED SIX HUNDRED AND

FIFTY-SIX, OTHERWISE KNOWN AS THE "PROPERTY INSURANCE LAW", AND
OTHER PURPOSES

WHEREAS, under Republic Act 656, the Property Insurance Fund was established and
placed under the administration of the Government Service Insurance System, which
Fund is separate, segregated, and distinct from the trust funds of government
employees comprising the Life Insurance Fund and the Retirement Insurance Fund as
established by Commonwealth Act 186, as amended, and from the Medicare Fund as
established by Republic Act 6111;

WHEREAS, the Property Insurance Fund was established "in order to indemnify or
compensate the Government . . . from any damage to, or loss of, its properties due to
fire, earthquake, storm, or other casualty";

WHEREAS, in spite of the provisions of Republic Act 656, the bulk of the insurable
assets and properties of the Government worth about P4 Billion remains uninsured,
thus exposing the Government to unnecessary losses in the event of damage to, or loss
of, such assets and properties;
WHEREAS, the non-insurance of such government assets and properties is due in part
to the limited capacity of private domestic non-life insurance companies to accept the
reinsurance of large risks from the GSIS, considering that the combined net worth of
private domestic non-life insurance companies in the country is approximately
P200,000,000, not more than ten per centum (10%) of which represents their maximum
retention capacity on any single risk in accordance with law;

WHEREAS, in view of the limited capacity of local non-life insurance companies to

absorb the reinsurance to be ceded by the GSIS in the event that it insures a large
portion of the existing insurable assets and properties of the Government, it is
necessary for the GSIS to develop its capacity to cede reinsurance abroad;

WHEREAS, considering that the placement or reinsurance abroad by the GSIS entails
foreign exchange outflows in the form or reinsurance premium payments, it is desirable,
from the country's point of view for the GSIS likewise to have the powers, authority, and
capacity to accept inward reinsurance from abroad and thus earn foreign exchange for
the country by way of premium earnings;

WHEREAS, in a multitude of cases, shipments to and from the Philippines are insured
by foreign insurance companies rather than Philippine companies in view of the limited
capacity of the domestic insurance industry to cover such risks and to denominate the
corresponding insurance policies in foreign exchange, which in many cases, is imposed
as a requirement by the suppliers of Philippine imports or the buyers of Philippine
exports;

WHEREAS, there are Philippine contractors undertaking work in foreign countries who
are required to present surety or performance bonds denominated in foreign exchange,
and who find it necessary to have such bonds issued by foreign insurance companies,
thereby contributing to the foreign exchange outflows from the country in the form of
premium payments;

WHEREAS, the rectification of the impediments cited above will not only save but will
also earn foreign exchange for the country and, at the same time, place principal
government assets, properties, and installations under adequate insurance protection;
lawphi1.net

WHEREAS, such impediments can be rectified by authorizing the Property Insurance

Fund established by Republic Act 656 to cede and receive reinsurance placements
within the Philippines and abroad; to issue policies, surety and/or performance bonds
denominated in foreign exchange; and to perform all acts necessary and/or incidental to
such functions;

WHEREAS, the powers and authority granted herein to the GSIS will not, in any way,
diminish the business conducted by domestic insurance companies, but on the contrary,
will increase the total volume of insurance transactions in which private insurance
companies shall participate through increased reinsurance cessions and retrocessions
to them by the GSIS;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by

virtue of the powers vested in me by the Constitution as Commander-in-Chief of all the
Armed Forces of the Philippines and pursuant to Proclamation No. 1081 dated
September 21, 1972, and General Order No. 1, dated September 22, 1972, as
amended, do hereby decree and order the amendment of Section 3, Republic Act
Numbered Six hundred fifty-six, otherwise known as the "Property Insurance Law", to
read as follows:

"Sec. 3. For the effectuation of the purpose of this Act, the Administration of Fund is
hereby placed under the Government Service Insurance System with the following
authority: (a) to engage in the business and operation of all kinds of insurance and
reinsurance and all other forms of undertaking to indemnify any person or party against
loss, damage, or liability, including third party liability, arising from unknown or
contingent events, except life insurance, subject to pertinent Central Bank rules,
regulations and policies; (b) to reinsure with and accept reinsurance from insurance and
reinsurance companies in the Philippines and abroad, under such terms and conditions
that may be mutually agreed upon, any excess risk the System may deem advisable,
subject to pertinent Central Bank rules, regulations and policies; (c) to issue policies
denominated in any foreign currency, provided that a certain minimum percentage to be
determined by the System in consultation with the Insurance Commission shall be
reinsured abroad and provided that the Fund's liability in any foreign currency shall be
covered by a minimum amount of foreign exchange assets, which may include forward
purchases of foreign exchange from the Central Bank, in accordance with rules and
regulations to be formulated by the System in consultation with the Insurance
Commission and subject to pertinent Central Bank rules, regulations and policies; (d) to
issue surety and/or in any performance bonds both in Philippine peso and/or in foreign
currency, provided that the amount of the bond to be issued on any one risk or
undertaking shall be limited to ten per centum (10%) of the net worth of the Property
Insurance Fund, and that the excess over said limit shall be reinsured with domestic
and/or foreign insurance and reinsurance companies; Provided, That the Fund's
bonding exposure in any foreign currency shall be covered by a minimum amount of
foreign exchange assets in accordance with rules and regulations to be formulated by
the System in consultation with the Insurance Commission subject to Central Bank rules,
regulations and policies; (e) to insure all insurable assets serving as collaterals for loans
extended by government financial institutions not otherwise authorized to issue
insurance policies; (f) to prescribe necessary rules and regulations, including such
incidental powers as are necessary for its operation; (g) to appoint personnel, who are
certified as eligibles by the Civil Service Commission, prescribe their duties, and fix their
remuneration. Section fifteen of Commonwealth Act Numbered One hundred eighty-six
shall not be applicable to the personnel of the Fund.

To reflect faithfully the functions of the Fund in accordance with this decree, the
Property Insurance Fund shall henceforth be known as the General Insurance Fund.

All laws, orders, proclamations, rules and regulations, or parts thereof, which are
inconsistent herewith are hereby repealed or modified accordingly.

This Decree shall take effect immediately.

Done in the City of Manila, this 13th day of July, in the year of Our Lord, nineteen
hundred and seventy-three.