BOLI Product Performance Over Varying Interest Rate Cycles

Dec 6, 2016

Bank-owned life insurance (BOLI) has been a high performing asset on bank balance sheets for many decades, and has been regularly purchased by banks since the early 1990’s. Currently the majority of U.S. banks own BOLI with a total in-force cash value exceeding $170 billion. BOLI products have provided consistently attractive performance over multiple interest rate cycles. Although the life cycle of a typical BOLI transaction lasts over many decades, the underlying insurance company portfolios supporting those polices have much shorter durations.

BOLI can be structured as a variable universal life insurance contract, a non-variable insurance contract, or a combination of the two.(1) 

The unique nature of a life insurer’s asset/liability needs give them the ability to take advantage of relatively predictable cash in and out flows, and use this information to be more nimble in a changing interest rate environment than a typical buy and hold portfolio. In addition, insurance company portfolios are large and diverse both in the types of assets owned and name of issuer.
Changes in market interest rates will find their way into BOLI portfolios through normal portfolio maturities and positioning. These new market rates continually find their way into BOLI policy crediting rates on a lag basis.

(1) Variable life insurance policies have certain inherent risks, including the possible loss of principal.  Risks associated with variable life insurance policies include, but are not limited to, liquidity, market volatility, asset default and investor control tax risk. Additionally, variable life insurance policies’ fees and expenses include, but are not limited to, mortality costs, stable value charges, policy administration fees and asset management fees.Please refer to your Private Placement Memorandum, Stable Value Agreement and/or Life Insurance Policy for definitions of the terms and/or data included in this report and to better understand the risk and fees associated with these policies.

Note that the views expressed above are those of Newport Group and do not constitute legal, tax or accounting advice; readers are strongly urged to seek independent accounting, tax, and/or legal advice in applying this information. The information provided herein is based solely on our informal, general understanding of the relevant technical issues as well as the products and plans that may be involved.  This information is not intended nor should it be used as an opinion on accounting, tax, and/or legal issues.This release is a high-level summary of a complex subject that is intended for Newport Group’s clients and intermediary partners and should not be understood as providing a comprehensive discussion of all issues or requirements under the regulations or as a guide to compliance and is for informational purposes only. Newport Group Securities, Inc. ("NGS") is both a FINRA-registered broker-dealer and an SEC-registered investment adviser. All securities transactions are provided by the broker-dealer, while all investment advisory services are provided through the registered investment adviser. When offering variable insurance products, Newport Group Securities, Inc. acts solely in its capacity as a broker-dealer. Other insurance products may be offered by Newport Group, Inc. NGS is located at 300 Primera Boulevard, Suite 200, Lake Mary, FL 32746 and is an
affiliated entity of Newport Group, Inc. No guarantee as to investment results. All investments in securities involve risks including possible loss of principal.

Unauthorized access is prohibited. This site is designed for U.S. residents only.
Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Fiduciary consulting services are provided through Newport Group Securities, Inc., an SEC-registered investment adviser and FINRA-registered broker-dealer, and InterServ, LLC, an SEC-registered investment adviser. Newport Group Securities, Inc. and InterServ, LLC are affiliates of Newport Group, Inc. All securities transactions are provided through Newport Group Securities, Inc., in its role as broker-dealer. All fiduciary consulting services are provided through the registered investment adviser. when offering variable insurance products, Newport Group Securities, Inc. acts solely in its capacity as a broker-dealer.
Trust and custody services provided by Newport Trust Company, a New Hampshire state chartered trust company and wholly owned subsidiary of Newport Group, Inc.