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SECTOR RELEASE

May 22, 2014No. 71

To all Boards of Directors, Managers and CEOs

Subject: Revised Differential Premium Score Determination System (DPSD)

On April 30, 2014, the government approved the recommendation made by DICO to revise the methodology used in determining annual premiums assessed to credit unions for deposit insurance coverage. The revised regulation was published in the Ontario Gazette on May 17, 2014.

The following are the key elements of the DPSD:

  • The calculation of the annual premium is based on two measures: Capital (weighted 64%) and Corporate Governance (weighted 36%)
  • A continuous scoring structure for capital and governance;
  • Better alignment of the examination processes as well as increased granularity for scoring of governance requirements; and
  • A continuous premium structure ranging from a low of $1.00 to a high of $3.00 per $1,000 of insured deposits (no change to the range of premium rates).

The DPSD will result in the following benefits:

  • elimination of premium “cliffs” whereby a small change in capital or governance scores can have a significant impact on the premium rate;
  • increased transparency and fairness in DPSD scoring and elimination ofdouble counting of some conditions and performance measures in the previous model;
  • updated structure reflecting changes to the Act and Regulation that increases the importance of capital to the on-going viability of institutions and protection of members’ deposits and places heightened emphasis on corporate governance;
  • a simpler approach to assessing relative risk, based on the two measures of Capital and Corporate Governance; and
  • improved fairness and flexibility for examination assessments.

This change will take affect for credit unions with financial years beginning on or after January 1, 2015. Specifically, the DPSD will be used to calculate the 2015 annual premium invoices beginning with credit unions with a fiscal year end of December 31, 2014.

The Differential Premium System Determination document can be found on DICO’s website along with the DPSD premium estimation tool and consultation paper.

A webinar is planned for the fall to review the DPSD scoring methodology and respond to any questions.

Directors may wish to consider the following sample questions for discussion at an upcoming Board meeting:

  • What would our credit union’s deposit insurance premium be under the new DPSD, given current capital levels and corporate governance ratings?
  • If our premium is not at or near the lowest level, what strategies can be implemented to lower the premium rate?
  • What is the cost of implementing these strategies?
  • Does the saving in deposit insurance premium outweigh the implementation cost?
  • Is this an appropriate objective and do the strategies fit within the credit union’s strategic plan and vision?
  • If premium reduction is a desirable objective, can the credit union effectively execute the plan by the time the revised DPSD is implemented?
  • Are there any undesirable impacts or unintended consequences that could arise?

If you have any questions, please contact your Relationship Manager.

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Ce communiqué est également disponible en français; pour obtenir un exemplaire veuillez téléphoner à Carmen Gheorghe à la SOAD en composant le 1-800-268-6653, sans frais d'interurbain