Wednesday, April 5, 2017

GAO: ASI Reserves Are Adequate to Cover Future Losses, But High Geographic and Deposit Concentration Poses Risk

In a recent report, the Government Accountability Office (GAO) found that American Share Insurance (ASI) has adequate reserves and has strong ability to cover present and future losses for the credit unions it insures.

ASI insures 125 privately insured credit unions with $13 billion in insured deposits.

According to its most recent examination by the Ohio Department of Insurance, ASI’s reserves for losses were consistent with Ohio’s legal requirements and were adequate and appropriate. Ohio Department of Insurance staff told GAO that ASI is classified as a nonpriority insurer, which means ASI is considered low-risk and does not require enhanced oversight.

While none of the eight state supervisors interviewed by GAO raised concerns about ASI’s financial condition, one state credit union supervisor worried that during volatile economic times ASI might not be able to cover losses once it had exhausted its capital. The supervisor noted that ASI is not backed by the full faith and credit of the U.S. government and has no access to state guaranty funds. However, in the event ASI becomes impaired, it can charge a special assessment to privately insured credit unions.

ASI told GAO that it has several processes in place to mitigate risk and help prevent and control losses from credit unions it insures. ASI conducts an examination of about 70 percent of its credit unions annually and and the rest on a 2–3 year cycle.

At the end of 2015, ASI had $218 million in assets (cash and investments) available to pay claims. But the GAO report noted at at the end of 2015, 14 privately insured credit unions each had more than that amount in total insured deposits.

GAO found that privately insured credit unions have a similar risk profile with federally insured credit unions. However, GAO found that privately insured credit unions are less geographically diverse and have higher levels of deposit concentration than federally insured credit unions.
  • Seventy-two percent of ASI-insured credit unions are located in 3 states -- Ohio, Illinois, and Indiana.
  • In 2015, ASI’s 2 largest credit unions (by total assets) represented 15 percent of its total insured deposits, and its 10 largest represented 54 percent of its insured deposits. In comparison, NCUA’s 10 largest insured credit unions (by total assets) made up 15 percent of total insured deposits in 2015.
GAO concludes that given this deposit concentration if one or more large privately insured credit unions failed, ASI could face difficulty paying claims.

Read pages 9 thru 21 of GAO report.

No comments:

Post a Comment


The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.