With the increase in BOLI usage, there are 3,002 financial service organizations using these policies as a means to offset the cost of supplemental retirement plans and other employee benefit costs and liabilities . Overall, the percentage of banks reporting BOLI ownership rose from 37.8% in 2002 to 42.8% in 2003, according to an analysis conducted by executive benefits consulting firm The Todd Organization.
“Financial institutions have long recognized that BOLI can be a quality asset that helps meet employee benefit liabilities and bolsters shareholder value,” said Ron Roth, Senior Vice President of The Todd Organization.
Examining year-end 2002 and 2003 call reports filed with the Federal Deposit Insurance Corporation (FDIC) for approximately 7,000 financial services’ operating companies with over $50 million in assets, the Todd Organization found among banks that own BOLI, the cash value of the life insurance ranges from a median of $1,386,000, among institutions with assets of $50 million-$250 million, to $164,375,000 at institutions with more than $5 billion in assets. This represents a 21% hike in the cash value of life insurance in 2003 compared with 2002.
Further, the holdings in these policies appear poised for growth. Since large institutions have a higher percentage of cash value life insurance relative to Tier 1 capital than do smaller institutions, many smaller community institutions that already own BOLI could increase their BOLI holdings significantly, The Todd Organization found. With the potential for this growth among smaller institutions, Roth offers a word of caution. “In the current environment of strong demand for BOLI, as well as the expectation for higher interest rates, it is particularly important that financial institutions carefully assess the credit quality of all BOLI products.”