MKA Executive Planners Blog

When the FDIC examiners are in, you want them to know that you are paying attention to details in order to keep your Bank in compliance.  By paying special attention to the following items on your Annual Bank Owned Life Insurance (BOLI) Review, you should be able to answer their questions regarding your BOLI with ease.  Your BOLI Administrator should be addressing the following key items in your Annual Review to make sure that you remain within OCC 2004-56 guidelines:

1. Amount of Life Insurance Assets – The amount of existing BOLI should not exceed 25% of the Bank’s Tier 1 Capital.
2. Insurance Carrier Ratings – Your BOLI Administrator should obtain reports on your BOLI carriers from an independent provider to make sure that the carriers remain strong and creditworthy.
3. Annual Gain in BOLI – The current gain in the BOLI policies should be used to offset the cost of providing employee benefits and therefore the current gain in the BOLI policies should not exceed the current employee benefit expenditure plus the cost of funds for the BOLI policies.
4. Concentration of BOLI – The concentration of BOLI with a single insurance carrier should not exceed the Bank’s single borrower lending limit.
5. Consent from Insureds – The Bank should have obtained written consent from all of the insureds prior to the Bank Owned Life Insurance purchase.
6. Revised Illustrations – Revised illustrations should be included as part of your Bank’s Annual BOLI Review. 
7. Crediting Rates – Check to be sure that the policies are crediting interest rates consistent with the industry.  Both current and guaranteed interest rates will be included on the revised illustrations and the Annualized Yield (cash-on-cash) should be calculated for single premium BOLI.
8. Taxable Equivalent Yield – For single premium BOLI, the Taxable Equivalent Yield should be calculated to be sure that, on a pre-tax equivalent basis, the crediting rates are competitive with earnings on invested assets.
9. BOLI Policy – The Bank should have a comprehensive, board approved, BOLI Policy in place, and any revisions to the BOLI Policy since the last annual review, should be included as part of the BOLI Review.

While preparing your Bank Owned Life Insurance Review, your BOLI Administrator should be looking at these items to see if a change is appropriate and make a recommendation as such.  It’s always a good idea to sit down with your advisor and review the details of the BOLI Review.

Any items that are found not to be within the OCC 2004-56 guidelines should be disclosed within your Annual BOLI Review.  It is better to reveal that information openly, and explain the reasons for the situation.  Transparency is the best policy.

For further information or assistance contact Barry N. Koslow, JD, at bkoslow@mkaplanners.com.

Securities offered through Advisory Group Equity Services, Ltd., Member FINRA/SIPC. 444 Washington Street, Woburn, MA 01801 (781) 933-6100.