General Guidance for Developing Differential Premium Systems

October 31, 2011
and its ability to withstand stress. The performance score is calculated by
combining a weighted average of CAMELS component ratings and certain
financial measures into a single performance score between 0 and 100.
The loss severity factor measures the relative magnitude of potential losses
to the FDIC in the event of a large institution’s failure. It ranges between 0.8
and 1.2.
The performance score and the loss severity factor are multiplied to produce
a total score, which the FDIC has authority to adjust to a limited extent. The
total score is converted to an initial base assessment rate.
The table below shows scorecard measures and components, and their
relative contribution to the performance score or loss severity score (which is
converted from a scale of 0 to 100 into the loss severity factor scale of 0.8 to
1.2). Scorecard measures (other than the weighted average CAMELS rating)
are converted to scores between 0 and 100 based on minimum and
maximum cutoff values for each measure. 30 A score of 100 reflects the
highest risk and a score of 0 reflects the lowest risk. A value reflecting lower
risk than the cutoff value receives a score of 0. A value reflecting higher risk
than the cutoff value receives a score of 100. A risk measure value between
the minimum and maximum cutoff values converts linearly to a score
between 0 and 100. The weighted average CAMELS rating is converted to a
score between 25 and 100 where 100 reflects the highest risk and 25 reflects
the lowest risk.
30 Most of the minimum and maximum cutoff values are equal to the 10 th and 90 th percentile values for
each measure, which are derived using data on large institutions over a ten-year period beginning with
the first quarter of 2000 through the fourth quarter of 2009—a period that includes both good and bad
economic times.
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