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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions

Directors and Officers Liability Insurance as Members of a Mutual Insurance Company


March 17, 1987

Alan J. Kaplan, Counsel

In your letter of February 19, 1987, you inquired as to whether the FDIC would have any objections to FDIC-insured federal savings banks and FDIC-insured state-chartered savings banks becoming members of ***, a captive mutual insurance company incorporated in Bermuda (the "Company"). The Company was formed to provide members of the *** League of Savings Institutions with directors' and officers' liability insurance and Keogh and IRA trustee liability insurance.

FDIC staff has reviewed, from supervisory and accounting perspectives, the Information Circular describing the Company. We have limited the scope of our review to FDIC regulatory requirements which would apply to participation in the company by FDIC-insured savings banks.

With respect to supervisory concerns, it does not appear, according to the information provided to us, that a participating bank will have any liability for activities or obligations of the Company except to the extent of the bank's initial one-time-only Reserve Premium contribution, which will be equal to 50 percent of the bank's estimated first-year annual premium for its directors' and officers' liability coverage. The information provided to us indicates that neither this Reserve Premium contribution nor the annual premium will exceed, for any one participating bank, .01 percent of the bank's assets, which, in our view, seems relatively insignificant.

With respect to accounting concerns, you have not specified the accounting treatment of the Reserve Premium contribution. If, as we assume, it will be handled in accordance with generally accepted accounting principles, it is unlikely that the FDIC would have any objection or concern.

Based on the materials reviewed by FDIC staff and assuming compliance with applicable state and federal law, the FDIC would have no objection to FDIC-insured savings banks purchasing policies from the Company.

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