Lavern Clarke, Business Editor

Antoinette McKain, the new boss of Jamaica Deposit Insurance Corporation, has confirmed that there will be no adjustments of the premiums paid by its policyholders, despite a doubling of insurance coverage of depositors in the event any of the companies it insures were to go bust.

On the face of it, the decision to increase the limit from $300,000 to $600,000 appears to leave the fund exposed to more rapid depletion.

But the new CEO said JDIC was projecting that deposits in the financial institutions regulated by the Bank of Jamaica, which form the basis of her agency's clientele, would grow at a rate of 10 per cent per annum - a projection based on past trends - to push up revenues that flow to the fund even without a shift in the premium rate.

The 15 policyholders pay premiums equivalent to 0.15 per cent of their insurable deposits, which generated flows of $421 million in the November 2005-October 2006 period, against insurable deposits of $305 billion, just about 75 per cent of which came from the commercial banking sector.

The premiums, plus net interest income on invested funds, build the Deposit Insurance Fund (DIF) from which restitution to savers - now capped at $600,000 per deposit account - in a failed financial institution, would be financed.

"Adequate coverage limit is one of the factors that builds confidence in the financial sector," said McKain, arguing that fatter payouts feeds into investor security.

Her agency is to meet with the banks and other policyholders to outline the change and explain its implication within a week of public campaigning, tentatively set for May, to educate savers on the protection the JDIC offers.

Essentially, McKain and her team are banking on continued growth in the financial sector to maintain a healthy DIF, which up to March 2006 was valued at $2.42 billion, having grown 35 per cent year on year.

The revenuegrowth in the fund would not necessarily be equivalent to movements in deposits since returns on investment would also factor. Up to March 2006, the JDIC had 2.56 billion invested in government paper, which averaged returns of 14.8 per cent, a three point decline year on year.

Additionally, the pending inclusion of the island's estimated 48 credit unions on the BOJ's watchlist, expected to be early in the current legislative year, and subsequently JDIC's client list, will offer the agency a new source of funds.

McKain declined comment on whether the smaller, membership-driven financial institutions - whose deposits were assessed at just over $25 billion in to March 2006 on an asset base of $34 billion - would be required to pay the same 0.15 per cent premium rate, saying a preliminary decision had been taken but not yet conveyed to the group.

She said however, that the new cap on insured deposits had been set in anticipation of the increased client list.

JDIC periodically reviews the coverage for savers in its annual risk assessment on the DIF, analysing its adequacy against shifts in the exchange rate, inflation and generally, "the soundness of the financial system."

The benchmark is 2.0 times per capita GDP. The current increase puts coverage at 2.27 times.

lavern.clarke@gleanerjm.com