General Account BOLI Sales Dominate Market in 2016

BOLI-5-15-17.pngIn 2016, bank-owned life insurance (BOLI) sales fell $804 million from 2015 to $3.244 billion, but the percentage of banks with BOLI policies increased to 62.2 percent, up from 60.5 percent the year before.

These are some of the findings from two separate reports on the BOLI market. The key reasons for the decline was in the purchase of both Hybrid Separate Account (HSA) and Variable Separate Account (VSA) products, where banks hold a portion of the investment risk. General Account (GA) products, where the cash surrender values (CSVs) are supported by the insurance company, dominated the BOLI market in 2016 with sales amounting to $2.948 billion or 90.9 percent of the total BOLI purchases that occurred last year, according to market research firm IBIS Associates. HSA sales amounted to only $149.3 million in 2016 with VSA sales trailing slightly behind at $147.2 million. VSA purchases declined by $347 million between 2015 and 2016 due to the lack of any large case sales. Larger banks tend to be the main purchasers of VSA products.

New Premium & Case Sales
The percentage of BOLI premiums invested in GA products has grown from 31.5 percent in 2012 to 90.9 percent in 2016. In contrast, HSA purchases have decreased in recent years. This is due to more GA product options, higher yields, and the high comfort level bankers have with the general credit-worthiness of GA carriers. VSA purchases have been somewhat erratic during the past few years and are still well below the volumes recorded earlier this decade. This is due to the lower current yields, the reduced number of carriers offering these products, and the increased complexity of the product when compared to GA or HSA products.

New Premium (In Millions)

  2012 2013 2014 2015 2016 5 Year Average
General Account $1,391 $1,896 $2,480 $3,050 $2,948 $2,353
Hybrid Separate Account $884 $1,009 $698 $494 $149 $647
Variable Separate Account $2,138 $274 $36 $504 $147 $620
Total $4,413 $3,179 $3,214 $4,048 $3,244 $3,620

Source: IBIS Associates

During the past five years, the number of individual BOLI sales has been relatively steady. The range during this period has been narrow with a low of 1,017 in 2015 and a high of 1,235 in 2013. The numbers below reflect the new BOLI cases that carriers have reported on their books.

New Case Sales

  2012 2013 2014 2015 2016 5 Year Average
General Account 709 897 901 909 1,017 887
Hybrid Separate Account 350 329 272 104 68 225
Variable Separate Account 62 9 2 4 9 17
Total 1,121 1,235 1,175 1,017 1,094 1,128

Source: IBIS Associates

Holdings by U.S. Banks
The CSV of BOLI policies held by banks stood at $161.8 billion as of December 31, 2016, reflecting a 3.6 percent increase from $156.2 billion as of December 31, 2015, according to the Equias Alliance/Michael White Bank-Owned Life Insurance (BOLI) Holdings Report™. The report revealed that:

  • Of the 5,913 banks in the survey, 3,680 or 62.2 percent reported holding BOLI assets as of December 31, 2016, and total BOLI CSV increased by $5.62 billion (3.6 percent) from $156.18 billion as of December 31, 2015, to $161.80 billion as of December 31, 2016.
  • With a balance of $72.46 billion (44.8 percent of all BOLI CSV) as of December 31, 2016, VSA BOLI continues to lead when measured by dollar amount. At the same time, only 464 or 7.9 percent of all banks hold VSA assets.
  • Nearly thirteen hundred (1,261) or 21.3 percent of all banks reported holding HSA assets as of December 31, 2016. These banks held $17.40 billion in HSA assets, representing 10.8 percent of total BOLI assets.
  • The type of BOLI assets most widely held by banks as of December 31, 2016 was GA policies. Of the 3,680 banks reporting BOLI assets, 3,537 (96.1 percent) of them held $71.94 billion in general account life insurance assets, representing 44.4 percent of total BOLI assets as of December 31, 2016.

BOLI Growth Continues
BOLI remains appealing to banks for several reasons:

  • It provides attractive tax-equivalent yields compared to alternative investments of a similar risk and duration;
  • The bank receives book value accounting so that changes in the market values of the underlying investment portfolio do not flow through to the bank.
  • The bank receives the life insurance proceeds tax-free upon the death of an insured employee; and
  • The bank can use the earnings to help offset and recover employee benefit costs, including non-qualified plans used to attract and retain key employees.

BOLI currently offers a net yield ranging from approximately 2.50 percent to 3.75 percent. For a bank in the 38 percent tax bracket, this translates into a tax equivalent yield of 4.03 percent to 6.05 percent. Thus, BOLI remains an attractive investment alternative for banks.


Ken Derks

Managing Consultant

Ken Derks is a managing consultant in NFP executive benefits at NFP Corp. He has more than 30 years of professional services experience in the financial services industry. For the past 17 years, Mr. Derks has advised many banks regarding nonqualified benefit plans and bank-owned life insurance (BOLI) programs as well as overall bank compensation strategies. He is a frequent speaker at state and national trade association meetings and has authored numerous articles on compensation, BOLI and nonqualified benefit plans.

Prior experience includes 16 years with RSM (McGladrey), serving as principal and national director of financial institution consulting. Mr. Derks is a registered representative with Kestra Investment Services, LLC.


David Shoemaker