Safety and Soundness Review on BOLI

It is imperative that banks periodically conduct a thorough review of their Bank Owned Life Insurance (BOLI) holdings beyond the information typically provided in an Annual Review by an existing BOLI vendor.  The IRC Section 7702 enacted on January 1, 2021 makes this review especially critical as permanent life insurance policies have become more efficient. 

A Safety and Soundness Review analyzes each of the bank owned policies, as well as the different types of products utilized to identify key areas the bank should closely monitor. These areas include carrier financial ratings, key operating ratios including mortality charges, company expenses, interest crediting rates, and mix of business (life, annuities, accident & health, etc.).  

In addition, if a bank owns Separate and/or Hybrid Account policies, it is critically important to investigate how the products are structured to see if there are ways to release some of the claims stabilization reserves to lower expenses of the policies.  Similarly, a review of the performance of the Separate Account funds the bank is investing in, both in Separate and Hybrid Account products, should be done to see if the funds are providing the best returns possible.  

In a typical Safety and Soundness Review the following items are provided to the bank:

  • A review of the current and future illustrated performance of each policy tranche of BOLI by carrier, and an aggregate performance of the Bank’s current and future BOLI yields
  • A deep dive into the insurance carriers’ financial ratings, key operating ratios, mix of business, and profitability in the Ordinary Life insurance line of business.
  • A thorough review of the Separate Account product and helping the bank to understand what the Claims Stabilization Reserve levels are, and if they are more than what is required to be held.
  • A review of the Separate Account investments that the Bank is utilizing, in both the Separate and Hybrid Products.
  • Recommendations for ways to improve the efficiency and returns of the BOLI holdings where applicable.

Ensuring the bank’s portfolio is current and receiving the best performance is a task that should be advised to do every few years. Executive Benefits Network works with many banks with Safety and Soundness Reviews and would welcome a conversation to explore this option further with your bank.