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.
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 predictive cash flows as well as normal portfolio maturities and positioning. These new market rates continually find their way into BOLI policy crediting rates on a lag basis, giving BOLI policies the steady and predictable earnings banks have experienced and should continue to expect.
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 an affiliated entity of Newport Group, Inc. No guarantee as to investment results. All investments in securities involve risks including possible loss of principal.