Credit unions can be federally or state-chartered, which determines their primary regulator for safety and soundness and also their options for deposit insurance. Federally chartered credit unions are regulated by NCUA and must be federally insured by the National Credit Union Share Insurance Fund, which is administered by NCUA and provides up to $250,000 of insurance per depositor for each account ownership type. State-chartered credit unions are usually regulated by credit union supervisors in their respective state. These credit unions can be federally insured (and thus also supervised) by NCUA or, in some states, can choose to be privately insured. As of February 2017, ASI was the only company providing private primary deposit insurance. ASI provides up to $250,000 of insurance per account (rather than per depositor for each ownership type, as with NCUA). Deposit insurance covers deposit products such as checking and savings accounts, money market deposit accounts, and certificates of deposit. It does not cover other financial products, such as investments in stocks, bonds, or mutual funds. The vast majority of credit unions are federally insured. As seen in figure 1, in 2015, there were more than 6,000 federally insured credit unions with more than $1 trillion in insured deposits, and 125 privately insured credit unions with $13 billion in insured deposits. The mix of asset sizes is largely similar for federally and privately insured credit unions, and the majority of both have assets of less than $100 million. Between 2011 and 2015, the number of federally and privately insured credit unions declined by about 15 percent, due largely to mergers and liquidations. Some credit unions chose to convert between private and federal deposit insurance and appendix II contains information about the reasons that some credit unions switch insurers. ASI is a private, not-for-profit company, headquartered in Ohio. The company is governed by Ohio law and licensed by the Ohio Department of Insurance, and its primary regulators are the Ohio Departments of Insurance and Commerce, although regulators in the other eight states in which ASI operates also have an oversight role. ASI has provided deposit insurance since 1974 and the company is owned by the credit unions for which it provides deposit insurance. The company does not normally charge premiums, which are common in the insurance industry, but instead requires its credit unions to maintain a capital contribution with the company, adjusted annually, equal to a rate of 1.3 percent of the credit union’s total insured deposits. In addition, ASI has the authority to charge special premium assessments under certain conditions with regulator approval, as it did in 2009–2013. ASI is overseen by a board of directors that is made up of six chief executives from the credit unions it insures, as well as one ASI management representative. Quarterly, according to ASI management, ASI’s board of directors meets to review and monitor the company’s financial statements, investment activities, risk management practices, information technology issues, and sales and marketing activities. An independent auditor annually audits and renders an opinion on ASI’s consolidated financial statements prepared in accordance with generally accepted accounting principles. Additionally, ASI retains an independent actuarial firm to conduct a capital adequacy study (at least every 3 years), annually review and help estimate loss reserves, and render an annual actuarial opinion on the adequacy of its loss reserves. Federal law requires that any depository institution that does not have federal deposit insurance clearly and conspicuously disclose that the institution is not federally insured. CFPB and the Federal Trade Commission (FTC) are the federal entities responsible for enforcing these requirements. In December 2011, CFPB issued an interim final rule restating the implementing regulation, which had been promulgated by FTC. This regulation, known as Regulation I, contains the disclosure requirements for credit unions that do not have federal deposit insurance. CFPB published a final rule in April 2016, which adopted its 2011 interim final rule without changes. Regulation I requires disclosure that an institution does not have federal deposit insurance (1) at locations where deposits are normally received (stations or windows) except enumerated exceptions, (2) on the institution’s main Internet page (website), (3) in all advertising except enumerated exceptions, and (4) in periodic statements and account records. Regulation I generally requires depository institutions to obtain a written acknowledgment from depositors that the institution does not have federal deposit insurance. The FAST Act amended the Federal Home Loan Bank Act to permit privately insured credit unions to apply for membership in a Federal Home Loan Bank (FHLBank) and, if approved, obtain the benefits of membership, including access to loans (known as advances). The FHLBank System is a government-sponsored enterprise, composed of 11 regional banks. Federally insured credit unions have been allowed to apply for membership since 1989; other members of the FHLBank System include commercial banks, thrifts, and insurance companies. The FHLBank of Cincinnati approved ASI as a member in June 2011. The Federal Housing Finance Agency (FHFA) regulates the FHLBanks and issued a proposed rule in September 2016 to implement provisions of the FAST Act. By law, certain types of prospective FHLBank members must have at least 10 percent of their assets in residential mortgage loans to be eligible. As of December 31, 2015, FHFA estimated that 78 of the 125 privately insured credit unions met this eligibility criterion. As of December 31, 2016, the FHLBanks had approved 16 privately insured credit unions for membership. The Ohio Department of Insurance’s most recent examination of ASI, which covered 2008–2012, did not identify any deficiencies in ASI’s financial condition and determined that ASI’s reserves for losses were consistent with Ohio’s legal requirements and were adequate and appropriate. According to Ohio Department of Insurance staff, the department has not identified any issues and was not aware of any problems with ASI’s loss reserves in at least the past 10 years. They noted that ASI is classified as a nonpriority insurer by the department, which means that the company is considered low-risk and does not require enhanced oversight. This determination was based on factors such as ASI’s Insurance Regulatory Information System (IRIS) ratios and management competency. As a result of this classification, the department conducts full-scope examinations of ASI every 5 years, rather than annually or every 3 years as conducted for insurers deemed riskier. Ohio Department of Insurance staff told us that as part of their full-scope examinations every 5 years, the examination team reviews ASI’s audited financial statements, analyzes estimates for loss reserves, and evaluates any risks to the company by reviewing legal issues, corporate governance, and management. In particular, the department’s actuary performs an analysis of ASI’s information to derive the department’s own estimate for ASI’s loss reserves. The department compares its derived estimate to ASI’s held reserves, as well as to the range of estimates reported by ASI’s third-party actuarial firm. Staff said that if the department were to identify significant differences in the estimates, it would request additional information from ASI to understand the reasons for the differences. Additionally, the department uses the IRIS ratios to aid in evaluation of the adequacy of ASI’s loss reserves. According to representatives from the National Association of Insurance Commissioners (NAIC), the procedures the department uses for assessing ASI’s capital, including its loss reserves estimates, are consistent with NAIC’s guidelines for conducting such assessments. Ohio Department of Insurance staff also told us that on an annual basis they review the statement of actuarial opinion of ASI’s loss reserve estimates (as rendered by the third-party actuarial firm and discussed later in this report) and ASI’s audited financial statements, and also compute financial ratios. According to the staff, as part of this review, analysts review ASI’s capital position and monitor ASI’s asset quality to ensure they did not deteriorate significantly in a given period. Under Ohio law, ASI is required to maintain at least $5 million in capital, and as of December 31, 2015, ASI’s capital was roughly $219 million. In addition, Ohio Department of Insurance staff said they consider any risks that could affect ASI’s financial condition. For example, they said they evaluate risk in terms of growth, underwriting, how the company invested its assets, and any legal concerns. In addition, the department analyzes the risk-based capital ratio. They also said that a company’s risk-based capital ratio must be at least 200 percent of its calculated authorized control level risk-based capital. From 2009 through 2015, according to examination records from the Ohio Department of Insurance, ASI’s risk- based capital ratio was well above this standard. Ohio Department of Insurance staff told us that ASI management is very transparent about disclosing risk that new credit unions may pose to the company. The staff said that they engage in quarterly discussions with ASI management about the company’s quarterly financial statements and the credit unions for which ASI is considering providing deposit insurance coverage. Ohio Department of Insurance staff said that their concern with ASI, as with any insurer, generally has been the risk posed by macroeconomic issues. For example, they stated fluctuations in the economy could pose significant concerns for insurers such as ASI. Therefore, a decline in the economy could have a significant (negative) impact on a company like ASI. The staff further noted that while the frequency of claims for losses for ASI would be low, the severity of such losses could potentially be high, which could pose a risk to the company. According to ASI management, roughly 2 percent of its privately insured credit unions failed during or since the 2007–2009 financial crisis (as compared to roughly 2 percent of federally insured credit unions, according to NCUA).