POWELL RIVER, British Columbia — As one of the first Canadian credit union CEOs to complete CUNA's CEO Institute, Powell River Credit Union Financial Group's David Craigen is very familiar with the U.S. credit union and CUSO systems. That's why when it comes to CUSOs, he believes CUs in British Columbia could learn from their American counterparts.
According to Craigen, "CUSOs in British Columbia are the exception, not the rule" because of the diminishing number of credit unions and the high level of competition between them, especially the larger ones.
British Columbia has 51 CUs and is the largest credit union province in Canada in terms of assets. According to Craigen, one out of every three British Columbia residents is a member of a credit union.
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"There's a fear that if there are so many large credit unions in British Columbia and 41 or so that are not so large, that if a credit union forms a CUSO with another CUSO, that your path then becomes a fait accompli. You become so reliant on the large partner that you don't have much of a choice after that. The environment in the U.S. between credit unions is more cooperative than here," he offers.
Another important factor that's diluted the number of CUSOs in British Columbia is the Canadian credit union tax structure. Since credit unions throughout Canada are taxed, CUs don't need to form CUSOs in order to have a taxed entity that's separate from them.
"So there's no reason for a credit union in British Columbia to have a CUSO unless it's for another reason," Craigen said, and that's exactly what happened with Powell River Credit Union Financial Group. The CU wanted to find a way to return income to members without going through the concerns of financial margins.
Last year, Powell River Credit Union Financial Group formed a CUSO with Greater Victoria CU called Athena CUSO Management Ltd. for the purpose of purchasing Coast Country Insurance Services Ltd. in the Comox Valley region of British Columbia. Since that acquisition, the CUSO has consolidated the operations of Enns Insurance Services of Campbell River and the Comox Valley files of Merit/Town & Country Insurance.
The CUSO has also assisted its owners in the acquisition of Island Pacific Insurance in Victoria and Oceanside Insurance in Powell River.
"Prior to the acquisition, we had one general insurance agent at Powell River. We wanted to diversify the revenue stream and find a new financial margin. We looked into other services and value added things to make membership in Powell River more worthwhile," Craigen explained. Powell River has 6,500 members.
Athena is located in Courtenay, B.C. and operates insurance outlets there as well as in East Courtenay, Comox, Campbell River and Powell River. It also does merger and acquisition work and is involved with creating alliances with other like-minded credit unions in the province.
The CUSO is also in the insurance agency consulting business. Craigen said the CUSO can provide CUs with the necessary tools to make an investment approved by regulators and deliver returns as much as three times better than a normal financial investment.
Athena currently provides personal casualty, home and auto insurance to both CU members and nonmembers. It employs over 60 licensed agents who write over $50 million in premiums in British Columbia. It has its own branded line of insurance products known as "The Protector" that is underwritten by leading insurers.
Craigen explained that Coast Country Insurance Services is "the laboratory" for Athena and handles all Protector policy wording changes, underwriting, rating and policy issuance. The various offices of Athena have access to the system and are able to handle a client transaction from the early stage of information gathering through to policy issuance.
Athena isn't the first CUSO that Powell River's involved in. The CU also has a separate wholly-owned insurance CUSO called Powell River Insurance.
Craigen said Powell River Credit Union Financial Group's return-on-assets as of Aug. 31 was 129 basis points, and 59 basis points of that came from the CUSOs. His plan for 2007 is to merge the two CUSOs' delivery models. By doing that, Craigen said that Athena would share in the volume bonus and economies of scale. In addition, Powell River and Greater Victoria Savings will be able to develop a financial instrument at Athena like mortgage brokers.
Powell River Credit Union Financial Group's involvement with the CUSOs has kept the CU under the regulators' microscope but Craigen has no regrets.
"One of the reasons we did this was to diversify our risk with underwriters. We got a better deal for the credit union and a revenue generator in the investment," he said. –[email protected]
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