Choosing BOLI as a Long-Term Asset

The keys to a bank’s success include its understanding of risk management, its approach to long-term planning and the lifelong relationships it develops with customers. 

A vital consideration for bank management teams when selecting financial products and services is a like-minded alignment and shared approach to planning for risks that span decades, not quarters. As bankers diligently work with borrowers and customers, these turbulent times reaffirm a bank’s decision to acquire a valuable long-term asset: bank-owned life insurance, or BOLI.


Many bank executives and directors view BOLI as an asset that remains on their balance sheet for decades. It’s a sizable asset for many banks. While the average BOLI contract at MassMutual is around $3 million, we work with many clients with larger policies. 

And because it’s a long-term decision, selecting a competitively priced product from a financially strong carrier helps ensure asset quality. This can provide bank boards with the assurance that their BOLI product is stable and that their carrier has the financial strength necessary to pay a market-competitive crediting rate at a time when banks need it most.

Demonstrated Commitment

Stability in the BOLI business is a strength; banks need their insurance carriers’ commitment to the BOLI market to be unwavering. During volatile economic times, the long-term commitment and stability of your BOLI provider can be a key asset for your bank.

As bank management evaluates which companies to work with, some of the considerations should include:

Longevity: How long has the insurer been continuously active in this space and across market cycles?

Service commitment: What types of servicing protocols are in place for existing clients, and how are advisor relationships supported?

Values: Does the insurer share similar values as the bank, and how does it demonstrate those values through community involvement and investment?

Investment Philosophy Underpins Stability

Boards have an obligation to govern and supervise their BOLI holdings, as well as the insurers with which they do business. Selecting a BOLI carrier is a vote of confidence in that firm’s long-term portfolio management and risk management philosophy.  It is incumbent that boards focus on their BOLI insurer’s approach to underwriting and its underlying long-term investment philosophy.

We believe the mutual company structure naturally gives MassMutual a long-term perspective when it comes to planning and investing, as we focus on economic value and not short-term stock prices.

The uncertainty caused by the coronavirus pandemic provides insight into how an insurer’s investment strategy performs in a volatile market. When it comes to due diligence on BOLI carriers, credit ratings are a great place to start. But directors should also look at the insurer’s capital levels, liquidity and financial cushion. 

To meet long-term commitments, insurers must follow an appropriate asset-liability matching program, while achieving attractive portfolio returns to back customer obligations. An insurer’s general investment account should be well diversified and managed with a long-term view that withstands short-term fluctuations in asset values.  Even in the most volatile market conditions, your bank’s BOLI provider should be positioned to meet the needs of those who rely on them. 

In view of today’s economic uncertainty, we understand BOLI may not be top of mind for directors and banks.  However, it’s important to understand the differences and nuances when it comes to BOLI management and investment. 

Evaluating and aligning with companies that share a similar approach to risk management, long-term commitment and sound investment philosophy have proven to pay dividends over the long term. While post-pandemic planning may be hard to conceptualize, banks operate and run for the long term, and should consider relationships with companies that feel the same.

Insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001. 

CRN202205-265653

A Common Trait Shared by Elite Bankers


investment-8-2-19.pngIf you talk to enough executives at top-performing banks, one thing you may notice is that not all of them see themselves as bankers. Many of them identify instead as investors who run banks.

It’s a subtle nuance. But it’s an important one that may help explain the extraordinary success of their institutions.

This came up in a conversation I had last week with the president and chief operating officer of a $2.6 billion asset bank based in New England. (I’d share the bank’s name, but they prefer to keep a low profile.)

His bank is among the most profitable in the country and is a regular fixture atop industry rankings, including our latest Bank Performance Scorecard.

Its profitability and earnings growth are consistently at the top of its peer group each year. More importantly, its total shareholder return (dividends plus share price appreciation) ranks in the top 3% of all publicly traded banks since the current leadership team gained control in 1993.

The distinction between investors and bankers seems to lay in how they prioritize operations and capital allocation.

For many bankers, capital allocation plays a supporting role to operations. It’s a pressure release valve that purges a bank’s balance sheet of the excess capital generated by operations. As capital builds up on the balance sheet, it impairs return on equity, which can foster the illusion that a bank isn’t earning its cost of capital.

To investors, the relationship between operating a bank and allocating its capital is inverted: The operations are the source of capital, while the efficient allocation of that capital is the ultimate objective.

Bankers who identify as investors also tend to be agnostic about banking. If a different industry offered better returns on their capital, they’d go elsewhere. They’ve gravitated to banking only because it’s a peculiarly profitable endeavor. In no other industry are businesses leveraged by a factor of 10 to 1 and financed with government-insured funds.

There are plenty of other bankers that fall into this categorization. The recently retired chairman of Citigroup, Michael O’Neill, is one of them. He said this when I interviewed him recently for a profile to be published in the upcoming issue of Bank Director magazine.

O’Neill’s time as chairman and CEO of Bank of Hawaii bears this out. A major objective of his, after refocusing its geographic footprint, was reducing the bank’s outstanding share count.

Bank of Hawaii had 80 million shares outstanding when O’Neill became CEO in 2000. When he left 4 years later, that had declined by 38% to only 55 million outstanding shares. This helped the bank’s stock price more than triple over the same stretch.

Another example is the Turner family, which has run Great Southern Bancorp for almost half a century. Since going public in 1991, Great Southern has repurchased nearly 40% of its original outstanding share count. A $2 million investment during the initial public offering would have been worth $140 million last year.

The Turners never said this when I talked with them last year, but it seems safe to infer that they view banking in a similar way. They’re not trying to build a banking empire for the sake of running a big bank. Instead, they’re focused on creating superior long-term value.

This philosophical approach coupled with meaningful skin in the game insulates a bank’s executives from external pressures to chase short-term growth and profitability at the expense of long-term solvency and performance.

“Having a big investment in the company … gives you credibility with institutional investors,” Great Southern CEO Joe Turner told me last year. “When we tell them we’re thinking long term, they believe us. We never meet with an investor that our family doesn’t own at least twice as much stock in the bank as they do.”

M&T Bank Corp. offers yet another textbook example of this. Of the largest 100 banks operating in 1983, when its current leadership team took over, only 23 remain today. Among those, M&T ranks first when it comes to stock price growth

I once asked its chairman and CEO René Jones what has enabled the bank to create so much value. One of the main reasons, he told me, was that they could gather 60% of the voting interests in the bank around the coffee table in his predecessor’s office.

And the bank in New England that I mentioned at the top of this article is the same way. The family that runs it, along with its directors, collectively hold 40% of the bank’s stock.

The moral of the story is that it’s tempting to think that capital allocation should play second fiddle to a bank’s operations. But many of the country’s best bankers see things the other way around.