DUBLIN, Ohio — As the number of Nevada CUs posting big losses continues to rise, attention turns to the nation's largest provider of private share insurance and its ability to absorb potentially large losses in this state and across the country.
American Share Insurance backstops 155 credit unions in nine states, including eight in Nevada that combine for $2.4 billion in assets. One, the $146-million Cumorah CU in Las Vegas, was recently shuttered and absorbed by the $574-million Credit Union 1 in Rantoul, Ill. But looming on the horizon in Glitter Gulch are problems at the $883-million Silver State Schools CU and the $579-million Clark County CU, both of which are insured by ASI. Silver State recently reported a $35.9-million loss and Clark County $20.3 million.
ASI's primary insurance covers up to $250,000 per account, and it also provides Excess Share Insurance that can be purchased to insure accounts beyond the standard $250,000.
The potential exposure ASI has in Nevada and in other states, including its home state of Ohio, where ASI has its largest concentration of coverage, has raised the eyebrows of industry observers, including one who termed the situation a "powder keg." But state CU regulators in Ohio and Nevada are downplaying concern, saying they are watchful of growing losses but do not foresee a wave of failures. According to the Ohio Department of Insurance, which oversees the Dublin, Ohio-based ASI, the private insurer is "financially strong," said spokesperson Robert Denhard. "We don't have any concerns about them. We monitor their financial solvency regularly, as we do any insurance company."
"We are strong and feel very comfortable in our capacity to cover potential losses, as do our regulatory authorities. At year-end 2008, our equity reserve ratio was 1.48%, and I think NCUA is reporting around 1.3% for their fund," ASI CEO Dennis Adams said, noting that the reserve ratio has dipped to 1.42% after the hit from Comorah. "We have $50 million in equity and $8 to $9 million in reserves. So that's $60 million in just pure reserves and has nothing to do with deposits our credit unions have given us, and nothing to do with our ability to go back to them and bill them for our losses." ASI showed a consolidated balance sheet of $230 million at the end of September.
Still, he insurer's team of 18 examiners is monitoring this state's credit unions closely. Adams pointed out that ASI annually reviews 80% of the credit unions it insures, making sure it audits the top 20 at least once a year. "We are often in twice a year at our top five institutions," Adams said. "More importantly, for those big credit unions, every month we get board reports, meeting minutes, and policy changes. We are very attentive to managing and reviewing our risk."
The risk at Silver State is clear: $500 million of its $770 million loan portfolio is in real estate in a part of the country where two-thirds of mortgages are underwater. The CU has $15 million set aside in allowance for loan loss. "We know that is a weak point. But we feel that number will be higher soon and will be sufficient to cover the loss exposure on the delinquent and current loans," said Adams, who expressed confidence in the CU's leadership to turn the situation around.
Even with a worst-case scenario-the failure of Silver State-Adams said it would not severely impact ASI. Silver State represents about a $32-million exposure, calculated Adams. "Over the history of ASI, our losses have run on average about 4% of the credit union's balance sheet."
Clark County CEO Wayne Tew is not concerned about ASI's stability. "The only real risks ASI has right now are a couple of credit unions here in Nevada. Other than that, their other credit unions have solid capital and decent earnings even in a bad year."
The problem, however, is there have been indications that the foreclosures and losses that have hit the Sand States so hard are starting to spread to previously healthy parts of the country, including the Midwest. Clark County has a 7.4% capital ratio and the CEO said the shop is "ugly but OK. We will be holding our breath for the first half of next year. But we have funneled more money into provision for loan loss than I ever thought we would-6% of our total portfolio. I don't know many credit unions that have it that high."
Elisabeth Daniels, spokesperson for the Nevada Division of Financial Institutions, said large losses are "absolutely" on its radar. "The division is closely keeping a watch on all Nevada financial institutions. We want to make sure if there are problems that they are caught as soon as possible."
As for concerns over ASI's ability to handle its exposure, "It's something this office is aware of but does not have a heightened concern with now," said Daniels. "We are confident depositors' money is protected at this point."
