Bank owned life insurance can be a tremendous asset to fund employee benefit liabilities: diversification of the balance sheet, tax deferred growth above equivalent bond holdings, predictable returns. It was once the Wild West in terms of standardization from one bank to another, but much has evolved over the past decade. In fact, it has almost done a 180 degree turn.

The Office of the Comptroller of the Currency has established supervisory standards applicable to bank purchases of life insurance. BOLI OCC 2004-56  pdficon_small gives clear direction on the four pillars of risk management for an effective BOLI program:

  1. Senior Management and Board Oversight
  2. Policies and Procedures
  3. Pre-purchase Analysis
  4. Ongoing Risk Management

The burden for compliance with the four pillars rests with the board. Specifically, a bank’s board of directors must understand the complex risk characteristics of insurance holdings and remain ultimately responsible for ensuring that the purchase and holding of BOLI is consistent with safe and sound banking practices. Failure to do so can result in disciplinary action.

Ressourcement is an Advisor Firm to M Benefit Solutions, both members of M Financial. M Benefit Solutions is the nationally endorsed provider of Executive Benefits and Bank-Owned Life Insurance (BOLI) programs for the Independent Community Bankers of America (ICBA). Additional information on M Benefit Solutions can be found here.

With diverse professional backgrounds in the fields of law, accounting, taxation, actuarial science, and finance, our collective knowledge base and experience assists in providing solutions that are not only technical and entrepreneurial as it pertains to funding and administration of BOLI but also reflect best practices from a regulatory standpoint.

pdficon_small Understanding BOLI