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Though pre-purchase analysis is of vital importance when entering into an agreement on a bank owned life insurance policy, the process of analysis does not stop there. There are many important elements that must be kept track of over the long term policy ownership period, in order to minimize risk, maximize opportunity, abide by the ever-changing legal regulations relating to BOLI, and generally protect one’s investment. Many of the key points of BOLI pre-purchase analysis apply to post-purchase analysis, especially in regard to the quality of the insurance provider. The FDIC, Federal Reserve Board, IRS and Office of the Comptroller of Currency release updated information about BOLI and modified regulations of the industry regularly, so their websites are a valuable place to start when conducting BOLI post-purchase analysis. An annual review of the BOLI assets of one’s institution is not just strongly recommended, either. It is a requirement to meet compliance obligations. There are many steps necessary to maintain maximum efficiency and protection with BOLI policy investments, and to meet compliance requirements.

Analysis of Insurance Provider

  • Just as one must thoroughly vet a potential insurance provider prior to the purchase and holding of BOLI policies, the chosen provider must be consistently analyzed for the length of the investment. The credit rating of the provider is key in this area, as it relates directly to their ability to pay out claims, so one should check that rating with the main agencies on a regular basis. It is also important to continually analyze the provider’s performance and business practices, in order to ensure that one’s investment is safe. As one does when entering the agreement, it is recommended to update one’s knowledge of their options of the provider runs into trouble, or pulls out of the market entirely.

Internal BOLI Post-Purchase Analysis

  • To meet compliance requirements, and as a general part of sound investment practices, a yearly analysis of internal BOLI elements is necessary, in addition to regular due diligence on the provider of the BOLI policies.
  • The first step is to identify all employees who are currently insured under BOLI policies, as well as all employees who will be insured in the near future.
  • Next, one must calculate the death benefit amounts of their BOLI, in comparison to the salaries of employees. This allows the adjustment or purchase of BOLI policies, in order to ensure that the right amount of insurance is being held to reach one’s goals.
  • An assessment of the amount of insured employees still working for the company will help to estimate efficiency and necessary adjustments.
  • One must regularly evaluate their desired risk management practices, in order to properly calibrate insurance holdings to the desired amount of risk-aversion.
  • It is important to analyze mortality rates and payouts, in order to determine how BOLI policies are performing relative to investment goals.
  • There is a variety of analysis required related to audits, both internal and external, peer reviews, and risk management reviews by independent agencies. An outside opinion, in addition to meeting compliance requirements, always helps add perspective to investment evaluations.
  • Lastly, one must evaluate the reasons for and consequences of any cash surrenders on BOLI policies.

Though the compliance requirements for BOLI post-purchase analysis may seem stringent and complex, they are truly beneficial to both banking institutions and government agencies. With changing regulations and uncertainty relating to insurance provider performance, regular reviews of BOLI information, efficiency and effectiveness will increase the odds that one’s investment performs as desired, and provides the right amount of cover on employee and executive benefits for which it was purchased.

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