Articles

The Purchase of BOLI in the Current Banking Environment

Banks are navigating a challenging and unprecedented banking environment due to the impacts of COVID-19.  Interest rates are low, businesses around the country are not fully operational, and banks are facing potential loan losses. However, banks are still expected to make strategic investments to continue to produce strong earnings while evaluating the risk of those underlying investments. During this challenging economic landscape, Bank Owned Life Insurance (BOLI) remains an asset banks should consider due to the consistent income produced by BOLI policies through high credit quality insurance companies.  

The BOLI industry had a strong first quarter of 2020 with over $640mm of new BOLI purchased.¹ Although the landscape has shifted due to COVID-19, BOLI is still attractive in today’s marketplace. BOLI carriers are large diversified insurance companies with most rated AA and above by S&P.  Insurance companies have sophisticated investment teams with vast resources that allow them to take advantage of opportunities in the market and provide strong performance.  In a new BOLI transaction, banks can expect cash on cash yields of around 3% with tax equivalent yields in the 4% range, depending on the tax rate. These yields are supported by the carriers’ large, established portfolios, which frequently include assets purchased during periods of higher interest rates. When invested in General Account BOLI, the mark-to-market risk is borne by the insurance carrier and the insurance companies provide ²guaranteed minimum crediting rates.

Some carriers have taken advantage of recent spread widening and purchased assets, which now support the ~ 4% tax equivalent yields noted above. This presents banks with an attractive high credit/high yield alternative to loans and other bank eligible assets.

For additional information, contact Justin Robertson, Senior BOLI Consultant or Scott Bethune, Vice President BOLI Consulting at (336) 333- 2050. 

¹ FDIC Call Reports    
² S&P Global – Market Intelligence
³ BOLItracker
4Insurance Carrier monthly rate sheets




Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Securities are offered through Newport Group Securities, Inc., a dually registered investment advisor and broker dealer, Member FINRA and affiliate of Newport Group, Inc. Securities in California are offered under the Newport Securities Insurance Services. For more information on Newport Group Securities, Inc. and it’s services please visit our website at www.newportgroup.com.

Newport Group and its affiliates do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making any decisions.

20200630-1221117-3710276

Copyright © 2015-2020 Newport Group, Inc.  All rights reserved.
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.
Investment Advisory and fiduciary consulting services are offered through Newport Group Consulting, LLC, a registered investment adviser and wholly owned subsidiary of Newport Group, Inc.
Securities are offered through Newport Group Securities, Inc., a dually registered investment advisor and broker dealer, member FINRA and affiliate of Newport Group, Inc. Securities in California are offered under the Newport Securities Insurance Services. See BrokerCheck for more information. Other insurance products may be offered by Newport Group, Inc.
For more information about Newport Group Consulting and its services, please refer to our Form ADV Part 2A.
Newport Trust Company, is a New Hampshire state chartered trust company and wholly owned subsidiary of Newport Group, Inc. Newport Trust Company provides independent fiduciary and trustee services for employee benefit plans.