Excerpts from GAO Study on ASI

With the recent failure of Cumorah CU, I’ve received requests to look into the operations of American Share Insurance (ASI) – a private insurer of credit union shares.

Unfortunately, it is hard to find information about the current financial condition of ASI, but I believe the following information from a 2003 Government Accountability Office study regarding how ASI is funded and its risk management practices might provide some insights (discussion begins on page 66 of the report).

ASI is chartered in Ohio as a credit union share guaranty corporation. ASI started insuring credit union shares in 1974 and it provides both primary share insurance and excess share insurance.

The funding structure of ASI‘s primary share insurance coverage is similar to the National Credit Union Share Insurance Fund (NCUSIF). Each member credit union, as a condition of insurability, is required to place a non-interest bearing, refundable capitalization deposit with ASI. This deposit is at-risk.

However, unlike the NCUSIF capitalization deposit, ASI’s capitalization deposit takes into consideration the risk of the credit union. Currently, the deposit requirement ranges from 1.0 percent to 1.3 percent of a credit union‘s total shares and is tied to the financial condition of the credit union. The NCUSIF capitalization deposit is a flat 1 percent of insured shares.

Additionally, according to GAO, ASI has the contractual ability to reassess all member credit unions up to 3 percent of their total assets to raise additional funds to cover catastrophic loss and Ohio statute authorizes that the Superintendent of the Division of Financial Institutions can order ASI to reassess its insured credit unions up to the full amount of their capital.

ASI reviews the financial statements of member credit unions no less than quarterly and conducts on-site examinations of privately insured credit unions at least once every 3 years. GAO reported that for large credit unions ASI increased its monitoring by conducting semiannual, on-site examinations, as well as monthly and quarterly off-site monitoring, which included a review of the credit unions’ most recent audits (monthly) and financial information (quarterly).

Furthermore, ASI’s termination policy enables it to manage risk. ASI may terminate a credit union’s insurance with 30 days notice to the credit union and its regulator, if the credit union fails to comply with ASI requirements to remedy any unsafe or unsound conditions or remedy an audit qualification in a timely manner.

ASI is dually regulated by the Ohio Division of Financial Institutions and the Ohio Department of Insurance. “The Ohio Division of Financial Institutions conducts annual assessments of ASI, which evaluate ASI’s underwriting and monitoring procedures, financial soundness, and compliance with Ohio laws. Under Ohio law, its Department of Insurance also is required to examine ASI at least once every 5 years,” according to GAO.

Ohio law requires ASI to provide copies of written communication with regulatory significance to Ohio regulators, obtain the opinion of an actuary attesting to the adequacy of loss reserves, and apply annually for a license to do business in Ohio.

In addition, ASI is subject to state oversight and regulation in those states where ASI insures credit unions.

But GAO did caution that ASI could find it difficult to cover catastrophic losses under extreme economic conditions because it does not have the backing of any governmental agency and lacks reinsurance for its primary share insurance program.