SOP Library

SOP NO: FS-IM02

Mission: Corporate Administration

Area: Financial Services (FS)

Activity: Insurance Management (FS-IM)

Title: SOP on Marine Insurance System

Date Approved/Issued: 07/06/99

Date Effective: 07/06/99

Digest:

Because of the voluminous shipping transactions NFA engages in for the

distribution of its stock inventories, we cannot overemphasize the importance of
securing adequate insurance coverage to indemnify any possible marine losses
that may occur due to extra ordinary perils of the sea. NFA is not only bound by
law to protect its assets but it is obliged to prevent the occurrence of material
losses on its inventories due to marine damages or otherwise which can have an
important bearing on the over-all stability of the entity.

For these reasons, a marine insurance coverage for all commodity shipments of
NFA is a must.
 To provide standard procedures and guidelines in insuring all NFA stock
shipments, whether for local distribution or for importation/exportation.

2. To define responsibilities in preparing documents required in facilitating the

filing and collection of insurance claims on losses suffered from marine
damages.

This SOP covers policies and procedures in securing marine insurance coverage
for all NFA commodity shipments except by overland; filing, billing and collection
system of insurance claims with GSIS and the necessary monitoring, internal
control and accounting treatment.

A. Insurance Coverage

1. NFA stocks transfers/shipments shall be covered under an open marine

insurance policy with a maximum automatic insurance liability limit to be
determined separately for inter-island transfers and importations/exportations
from time to time as the need arises. The maximum current liability limit are
as follows :

Type of Shipment Liability Limit

Inter-Island transfers P 50 million

Importation/exportation 200 M for rice
250 M for corn

An open marine insurance policy refers to an automatic insurance coverage

for all transfers/shipments of NFA commodities from the warehouse of origin
to the final warehouse of destination (for importation) or from one port to
another (for local shipments) through any form of conveyance whether by air
or by sea with a value not exceeding the maximum insurance liability limit.
Any amount in excess of the maximum insurance liability limit shall only be
covered upon declaration made prior to actual shipment.
2. The open marine insurance coverage for all NFA stock transfers/shipments
shall be contracted with the Government Service and Insurance System
(GSIS) by the Administrator in behalf of NFA. All terms, clauses and
conditions stated in the insurance policy shall be strictly followed unless both
parties, NFA and the GSIS, agree to amend or to alter such terms, clauses
and conditions.

3. The Insurance, Billing and Collection Division (IBCD) of the Special Project
Office (SPO) shall be responsible for securing marine insurance coverage for
all NFA commodity transfers/shipments whether by sea or air cargo based on
a Bi-monthly Summary Schedule of Shipments (Exhibit I) prepared by the
Department for Marketing Operations - Operating Coordination Division
(DMO-OCD) (for local shipments) and based on the memo request of DMO-
Foreign Operations Division (DMO-FOD) (for imported cereals).

4. For local shipment, DMO-OCD shall prepare and submit a letter of request
for marine insurance coverage together with the Bi-monthly Summary
Schedule of Shipments to the SPO-IBCD which the latter shall submit to
GSIS on the Monday of the week following the two-week shipment period.
The individual value per shipment shall not exceed the automatic insurance
liability limit.

For importation/exportation, DMO-FOD shall notify SPO of the shipment

within five (5) working days upon acceptance of the vessel nomination,
containing all the following pertinent information regarding the intended
shipment:

For Local Shipments

a) Bill of Lading Number

b) Variety/quantity/value of commodity
c) Origin and destination
d) Name of carrying vessel/barge/tugboat
e) Estimated time of departure and arrival

For Importation/Exportation

a) Supplier
b) Commodity/Quantity (bags and kilograms)
c) Value of shipment
d) Origin and destination
e) Estimated time of departure and arrival
f) Name of carrying vessel/flag
g) Age of vessel/year built
h) Registry classification of vessel
5. For inter-island transfer of commodities, it shall be the responsibility of the
field office (P.O./R.O.) Marketing Operations Group to assure that all
pertinent information regarding the transfer of commodities are furnished to
DMO, copy furnished SPO, thru the fastest available means at least three
(3) days before any shipment is effected. However, all wires on commodity
shipments whose value exceed the maximum insurance liability limit and
whose ETD falls on Saturday/Sunday/Holiday, must reach DMO-OCD cc:
SPO-IBCD not later than 12:00 o'clock noon on Friday or on the working day
before the holiday. SPO shall then declare the said shipment to GSIS
immediately and before actual departure and sailing of the vessel from the
origin/loadport.

6. For insurance purposes, the value of the local commodities to be shipped

shall be declared based on its book value. For importation, the value to be
declared shall always be based on the commercial invoice of the
commodities. For this purpose, dollar value of imported/exported
commodities shall be converted to its peso value using the prevailing BAP
(Bankers Association of the Philippines) exchange rate on the day of
coverage as verified by SPO-IBCD.

7. Any material changes in the circumstances related to the shipment of

commodities must be relayed to DMO-OCD/FOD and then to SPO-IBCD
immediately for re-insurance purposes.

8. The disbursement voucher for the premium payment of the insurance

coverage shall be prepared by SPO-IBCD upon receipt of the
endorsement/risk note from the GSIS as proof of marine insurance coverage
for the shipments declared to GSIS and the insurance premium billings. The
disbursement voucher shall be processed thru the usual voucher processing
system. To facilitate processing and payment, the disbursement voucher
must be supported by the following documents :

For Local Shipment/transhipment

a) Letter of request for insurance coverage

b) Summary schedule of local shipments containing
the following:

Vessel name
Origin
Destination
BL number
ETD/ETA
Variety
Quantity
Value
 c) Copy of wires re: advice of shipment
d) Computation sheet re: insurance premium due
e) Risk note
f) Premium billings of GSIS

For Importation

a) Commercial Invoice
b) Bill of Lading
c) Premium Billing from GSIS
d) Risk Note
e) Computation Sheet

B. Claims for Damages/Losses

1. The disport/destination province shall be primarily responsible for informing

IBCD-SPO cc: DMO-OCD/FOD and the source province of the
losses/damages on the commodities/MTS within 24 hours upon discovery
during unloading at the port. For losses/damages discovered upon arrival
at the destination warehouse, it shall be determined whether the losses
suffered occurred during hauling or the losses originated from the vessel
(undetected at the port).

Likewise, the vessel agent (for foreign shipment) and vessel owner (for local
shipment) and all parties concerned must be informed by the disport
province of the loss/damage immediately upon discovery.

The notice of loss/damage shall include the following information:

a) Estimated volume and value of lost/damaged commodities

b) Estimated cause/nature of damage/loss (indicate whether by rain or sea
water, oil, jettison, etc.)
c) Date and place of occurrence
d) Name of carrying vessel
e) Type of commodity

2. The destination province shall be responsible for filing the written

provisionary claim with the vessel owner and/or shipping agent, Stevedoring
Contractor, Trucking Contractor and the Customs Arrastre Contractor, as
the case may be, within 24 hours upon identification of damage/loss. The
provisionary claim executed by the NFA Field Office shall be acknowledged
by the owner of the vessel or Manager or their authorized representative.
 A Sea Protest shall be secured from the vessel captain in case of
loss/damage due to extraordinary perils of the sea by the following:

For stocks that were For stocks that were

received by the not received by the
Destination Province Destination Province

For local shipments Destination Province

Province of Origin

For Importation Destination DMO/FOD

Province

The Sea Protest shall be executed by the vessel captain within 24 hours
upon arrival at the port of distress.

Further, a weather report, casualty report from the coast guard may be
secured to support the allegation of the captain.

3. The SPO-IBCD upon receipt of notice of loss/damage from the concerned

field office shall immediately file a provisional claim letter with GSIS. The
provisional claim letter shall specifically state the following information
necessary to facilitate investigation by the insurance adjusters:

a) Estimated volume/value of loss/damage

b) Estimated cause/nature of damage/loss
c) Date and place of occurrence
d) Type of commodity
e) Name of carrying vessel and date of arrival
f) Policy/Risk/Endorsement Note number of insurance covering the
lost/damaged commodity shipped, if available or if not yet available, date
of marine cargo declaration (Date of receipt of letter request for insurance
coverage).

4. A formal claim (Annex D) letter shall be filed by the Contracting Province (for
local shipments) or by DMO-FOD (for importation/ exportation) with the
vessel master or Shipping agent immediately upon receipt of the following
information :

a) Actual volume/value of damage/loss

b) Cause/nature of damage/loss
c) Date and place of occurrence
d) Type of commodity
e) Name of carrying vessel
f) Date of vessel arrival
 In case the vessel owner or agent refuses to receive the formal claim a copy
of the formal claim shall be tendered. The person who served the formal
claim shall execute an affidavit regarding the circumstances surrounding the
serving of the formal claim.

Freight claims by the Shipping Company (particularly for local shipments)

equivalent to the estimated amount of loss shall be withheld until liability for
the lost/damaged commodities is established in coordination with the GSIS
adjuster. However, SPO may recommend the full or partial release of freight
claims to the Shipping Company on a case to case basis depending on its
initial findings as regard to the liability for the damage/loss suffered.

5. In cases where other contractors (e.g. Customs Arrastre Contractor,

Stevedoring Contractor, Trucking Company) may be held liable for the
damage/loss suffered on commodity importation/exportation, the destination
province shall send formal letter claims to concerned contractors specifically
stating information as provided in paragraph B.4.

6. The concerned provincial office shall furnish DMO-OCD/FOD and IBCD-SPO

with copies of the provisional and formal claims sent to the Shipping
Company, Customs Arrastre Contractor, Stevedoring Contractor, or Trucking
Company, as the case may be, including their replies thereto, if any.

7. The Provincial Office concerned shall furnish SPO-IBCD with the pertinent
data/documents on the damage/loss suffered within three (3) months from
the time of occurrence or discovery to facilitate the filing of a formal insurance
claim (Annex D) with the GSIS. The required data/documents shall be as
follows :

a) Bill of Lading
b) Marine Protest filed by the Vessel Master
(for losses arising from heavy weather or "force majeure")
c) Pictures of damaged commodities
d) Laboratory Analysis Report/Damaged Stock Report
e) Proof of Loss
f) Delivery Way Bill/WSR/WSI/ESR/ESI
g) Copies of the provisional and formal letter claims filed against the
Shipping Company, Customs Arrastre Contractors, Stevedoring
Contractors or Trucking Contractors and their replies thereto, if any. The
claims filed must be acknowledged received by the addressee.
h) Bad order certificate from arrastre services
i) AI issued to GSIS assigned adjuster
j) Proof of Disposal/Sale of Salvage (OR issued to GSIS assigned
adjuster)

If Issued for burning/dumping

 a) Pictures of burnt stocks
b) AI/WSI
c) Disposition report

The PM shall be liable for negligence for failure to submit the complete
documents within the prescribed period and sanctions shall be imposed
accordingly.

8. For damaged/lost commodities on importation/exportation, DMO-FOD shall

furnish SPO-IBCD with certified true/xerox copies of the Bill of Lading and
the supplier's invoice of whole shipment insured and formal claim filed
against supplier/vessel owner/agent. Said documents shall be included as
supporting documents for the filing of formal claims with the GSIS.

9. All required documents as provided in paragraph B.7 and B.8 must be

submitted to SPO-IBCD in three (3) copies. All must be certified true copies.

10. SPO shall prepare the formal claim with final computation and shall
consolidate the required data/documents for submission to GSIS. For this
purpose, SPO-IBCD shall accomplish the GSIS insurance claim bill form and
same shall be filled with the GSIS together with the NFA billing, certified
true/xerox copy of the Marine Cargo Policy Cover Note/Risk
Note/Endorsement Note and all the required supporting documents as
provided in paragraph B.7 and B.8. Filing of the formal insurance claim shall
be made immediately upon receipt/consolidation of all the required
data/documents.

IBCD-SPO shall furnish DAS-CIAD a copy of the insurance claim bills and
supporting documents for record purposes.

11. The total insurance claims on marine damaged commodities shall be

computed by SPO based on the declared value of the commodities upon
shipment as covered by the marine insurance less salvage proceeds, if any.
In computing for the amount of insurance claim, the following formula may be
used :

Value of damaged commodities = (damaged quantity x

unit cost)
To derive the unit cost:

Unit Cost = (insured value/insured quantity)

In case of total loss, total insurance claims against GSIS shall include total
insured value of the commodities plus all other incidental expenses incurred
in the unloading and warehousing of the damaged commodities, if any. All
 marine damaged commodities shall be turned-over to GSIS after segregation
from the good stocks.

12. SPO-IBCD shall have the sole responsibility of transacting with GSIS
concerning all insurance claims filed to facilitate early settlement of the same.

13. For Local Shipment - If the Vessel Owner/Stevedoring Contractor/Trucking

Company acknowledges the damage/loss as their liability, notice or
certification shall be sent to SPO-IBCD by the concerned provincial office.
The freight payable to the shipping company shall be applied to the
loss/damage. Should the loss/damage be greater than the freight due, the
difference shall be charged against the insurance. Should the loss/damage
be equal or less than the freight due, the claim shall be waived. In either
case, the concerned province shall advise SPO of such offsetting for its
appropriate action.

For Importation - If the vessel owner/agent acknowledges the damage/loss

as his liability, notice or certification shall be sent to DMO/FOD by the disport
province. DMO/FOD then recommends to SPO the waiver of claim with
GSIS or the billing of the net amount due as the case maybe. SPO in turn
informs GSIS of such waiver or prepares the bill for the net loss sustained.

14. Denied insurance claims involving legal matters shall be endorsed to the
Department for Legal Affairs (DLA) by SPO-IBCD for appropriate legal
actions. If denial on such insurance claims is found to have legal grounds, a
write-off of the insurance claims shall be effected. Copies of the documents
shall be endorsed by DLA to DAS-CIAD to take-up the write-off in the books,
copy furnished SPO and DMO.

C. Disposition of Marine Damaged Stocks/MTS

For the disposition of marine damaged stocks/MTS, please refer to the SOP on
the Disposition of Marine Damaged Stocks Covered by GSIS Marine Insurance
Policy per SOP No. GM-DS04 issued and made effective January 7, 1997 and
its Amendment/addenda issued thereto.

D. Monitoring and Internal Control

1. Two Insurance Registry Books (Exhibit 2), one for domestic shipments and
one for importation/exportation, shall be maintained by SPO-IBCD where all
marine insurance covers as well as adjustments or cancellations on issued
insurance policies are recorded. Insurance claims filed with GSIS shall also
be recorded in the registry book.

2. SPO-IBCD shall reconcile every month all marine insurance coverage taken
vis-a-vis the shipments made by provincial offices per Schedule of Shipment
 Sent-Out (Exhibit 3). Likewise, SPO-IBCD shall also reconcile every month all
insurance claims filed on marine damaged/lost stocks/MTS with the
shipments received by provincial offices per the Schedule of Shipments
Received (Exhibit 4). For this purpose the DMO-OCD shall submit to SPO-
IBCD a list of all actual dispersal by sea every first week of the succeeding
month indicating therein the status of the shipment.

3. SPO-IBCD shall see to it that all shipments, whether for domestic transfers or
for importation/exportation, are covered by insurance and that all marine
damage/loss sustained are indemnified. In this regard, IBCD-SPO shall be
responsible for monitoring and coordinating with DMO-OCD/FOD and
provincial office for the timely submission of required data, documents and
reports for the purpose of securing insurance coverage and/or filing of
insurance claims.

E. Accounting Treatment

1. Marine Insurance (imported stocks) shall be accrued at the disport office at

0.34% of contract price. A separate HOA advice shall be prepared for this
purpose.

Marine Insurance for local shipment shall be based on the declared value of
merchandise (e.g. Cereal = .528%, MTS = .264% General Merchandise = .
6925% and sugar = .382%).

2. Any variance incurred from the accrual of Marine Insurance against payment
shall be absorbed by the Central Office and the variance shall be charged to
Transfer Cost Variance Account II - (TCV - II).

3. Marine damaged commodities shall be physically reclassified from the good

ones for the purpose of identification only. The value of marine damaged
commodities shall remain the same as far as the books are concerned.

4. In reporting collection of claims receivable from insurance company, the

DTBFM-Cash Division should indicate in the NFA Official Receipt (O.R.) the
NFA bill Number and all the details of the particular insurance claims
collected together with supporting documents, if possible, for proper matching
against claims receivable previously set-up in the books.

5. Journal Entries to take up insurance transactions in the books :

a) To set up accruals on Marine Insurance:

F.O. Books (Disport Province)

DR : Inventory Items for Sale xxx

 DR/CR : Inventory Cost-Marine
Insurance (Contract
Price x 0.34%) xxx xxx
CR: HOA xxx

Central Office Books

Responding entry to set-up the accruals on marine insurance

CR: FOA (xxx)

CR: Accrued Expense Payable xxx

To record payment of Marine Insurance

DR: Operating Expense-TCV II/

Retained Earnings xxx
DR: Accrued Expense Payable xxx
DR/CR: Vouchers Payable xxx xxx
CR: Cash in Bank xxx

b) To record the receipt of damaged stocks/MTS based on WSR:

Field Office Books:

DR: Misc. Invty - Damaged Stocks xxx

CR: Inventory in Transit xxx

To record the withdrawal of stocks by GSIS per WSI:

CR: HOA (xxx)

CR: Misc. Invty - Damaged Stocks xxx

Central Office Books

Upon Billing

DR: Miscellaneous Receivable - GSIS xxx

CR: FOA xxx

c) To record collection of insurance claims filed for damages/losses sustained

based on O.R.:

DR: Cash with Collecting Officer xxx

CR: FOA (adj. between amt. of
or (CR) receivable previously set-up
& actual amount of collection) xxx or
 (xxx)
CR: Misc. Receivable- GSIS xxx

All rulings and/or issuances inconsistent herewith are hereby superseded.