Equias Alliance is in the BOLI and benefit plan news often.

BankDirector.com

Report on the Market: BOLI Assets Continue To Have Strong Growth

By: Ken Derks, David Shoemaker | April 29th, 2015

Bank-owned life insurance (BOLI) experienced another year of steady growth, with $149.6 billion in total assets in 2014, a 4 percent increase from the year before, according to the latest research from the Equias Alliance/Michael White Bank-Owned Life Insurance (BOLI) Holdings Report. For banks with less than $10 billion in assets, the growth rate was a robust 7.1 percent.

Of the 6,509 banking institutions in the U.S. operating at the end of last year, 3,803 (58.4 percent) held BOLI assets. BOLI was popular among all types of banks, with more than 50 percent of banks of all charter types holding BOLI assets. Leading the way were savings banks with 76.0 percent of the 367 banks in this category owning BOLI and Federal Reserve- member banks with 67.4 percent of the 858 banks in the category owning BOLI.

One of the reasons that bank-owned life insurance (BOLI) continued to experience significant growth in 2014 is that existing policyholders often chose to make additional BOLI purchases. This is not uncommon and is a testament to the satisfaction that many BOLI clients have with both the short and long-term performance of their BOLI policies. BOLI remains popular with banks because:

  • It provides tax advantaged investment income not available with traditional bank investments, as well as attractive yields compared to alternative investments of a similar risk and duration.
  • The growth in the cash value of the BOLI policies generates income for the bank and its shareholders.
  • The bank receives the life insurance proceeds tax-free upon the death of an insured employee who elected to participate in the plan.
  • The bank may, at its discretion, enhance the benefits it provides to the insured employees.

Thus, each year, an increasing percentage of U.S. banks hold BOLI assets and use the income to help offset and recover employee benefit expenses such as healthcare and retirement.

With BOLI currently providing a net yield ranging from 2.50 percent to 4.00 percent, depending upon the carrier and product, it is not difficult to understand why BOLI remains so appealing to banks. For a bank in the 38 percent tax bracket, this translates into a tax equivalent yield of 4.03 percent to 6.45 percent.

Hybrid and Variable Separate Account Plans

Hybrid separate account plans have continued to grow rapidly the past several years. The number of banks using hybrid separate account has increased by 47.7 percent from 862 at the end of 2011 to 1,273 at the end of 2014 and the amount of hybrid assets reported has increased by 53.2 percent from $10.36 billion to $15.87 billion over the same time period.

Hybrid separate account policies have been attractive to banks because they combine features of both general and separate account insurance products. Hybrid separate account policies operate like general account policies in that the price risk and default risk of individual securities within the portfolio remain with the carrier. In addition, the carrier guarantees a minimum crediting rate of 1.00 percent to 2.00 percent. The enhancement that many banks find attractive is that if the carrier ever becomes insolvent, the assets in the separate account are segregated from the general creditors of the carrier. Essentially, the assets in the separate account serve as collateral for the cash value of the policies. Hybrids have only been available in to BOLI marketplace for approximately 13 years compared to 33 years for general account products, so the total asset value is lower, but the growth rate is greater.

The largest portion of BOLI assets continues to be held in variable separate account policies (47.6 percent of total BOLI assets). However, only 1.1 percent of this total was held by banks with less than $1 billion of assets. Like hybrid separate account products, the assets in a variable separate account are segregated from general creditors in the event of the carrier’s insolvency. However, gains and losses of the underlying investment portfolio are passed through directly to the policyholders. While most banks that have purchased variable separate accounts policies utilize “stable value” wrappers to reduce the accounting volatility, the complexity of the product has made it more suitable to larger banks than to smaller banks.

It is also interesting to note that median BOLI assets rose from 7.6 percent to $3.98 million in 2014 from $3.70 million in 2013, and that the median ratio of bank BOLI assets to Tier 1 Capital increased from 17.46 percent of capital in 2013 to 17.67 percent of capital in 2014.

New Policies in 2014

In 2015, IBIS Associates, Inc., an independent market research firm, published a report analyzing BOLI purchases last year based on information obtained from carriers that market BOLI products. According to that report:

  • Life insurance companies reported placing 1,175 BOLI cases in 2014 representing about $3.21 billion in premium. The 1,175 cases included banks purchasing BOLI for the first time as well as additional purchases by banks that already owned BOLI.
  • Of the $3.21 billion in new premium, $2.48 billion (77.2 percent) was put into general account; $698.4 million (21.7 percent) into hybrid separate account; and $35.6 million (1.1 percent) into variable separate account.
  • Of the 1,175 cases placed, 494 (42.0 percent) were under $1 million in premium; 341 (29.0 percent) were between $1 million and $2 million; 242 (20.6 percent) were between $2 million and $5 million; 75 (6.4 percent) were between $5 million and $15 million; and 23 (2.0 percent) were over $15 million.
The Market’s Future

The near term trend in the marketplace is for higher general account and hybrid separate account purchases and relatively few variable separate account purchases. Finally, the amount of BOLI assets held by U.S. banks is expected to increase annually by 3 percent to 4 percent based on recent results.

Ken Derks is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact Ken Derks at 469-252-1037 or kderks@equiasalliance.com.

David Shoemaker, CPA/PFS, CFP®, is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact David Shoemaker at 901-754-4924 or dshoemaker@equiasalliance.com.

Securities offered through ProEquities, Inc., a Registered Broker/Dealer, and member FINRA and SIPC. Equias Alliance LLC is independent of ProEquities, Inc.

Equias News

Q3 2017 Equias Alliance/Michael White 2017 BOLI Holdings Report
Click here to read more

Compensation Strategies to Attract, Retain and Motivate Millennials – BankDirector
Click here to read more

Top 10 Reasons Banks Own BOLI – Joe Schaefer, MBA
Click here to read more

More Equias News

Current Events

Ohio Bankers | OBL Economic Summit | February 6 | Greater Columbus Convention Center, Columbus, OH

American Bankers Association | National Conference for Community Bankers | February 25 - February 28 | Hilton Hawaiian Village Waikiki Beach Resort, Honolulu, HI

More Current Events

 

 

Insurance services provided by Equias Alliance, LLC, a subsidiary of NFP Corp. Doing business in California as Equias Alliance Insurance Services, LLC (License #0H52337). Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Kestra IS is not affiliated with Equias Alliance LLC, NFP Corp., or any other entity listed herein. Kestra IS does not provide tax or legal advice and is not a Certified Public Accounting (CPA) firm. Not all persons listed on this website are registered with or offer securities through Kestra IS. Only appropriately licensed individuals can offer securities through Kestra IS.

This site is published for residents of the United States only. Registered Representatives of Kestra IS and Investment Advisor Representatives of Kestra AS may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact our Compliance department at 844-5-KESTRA (844-553-7872).

Any web site links referenced are being provided strictly as a courtesy. Neither us, nor Kestra IS or Kestra AS are liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of the links provided.

Equias Privacy Policy

butten linkedin

Consultant Login

Copyright ©2018 Equias Alliance. All rights reserved.