For many years banking organizations have utilized bank owned life insurance (BOLI) as a competitive alternative investment to improve return on earnings & assets and profit & loss. With proper design and the selection of the right product, banking organizations have enjoyed after-tax BOLI returns that in most cases outperformed holdings in treasuries, agencies, and municipal bonds.
Just like other investments in a bank’s portfolio, periodic reviews of its BOLI portfolio should be conducted to verify the product design and carrier are optimizing performance and maintaining the desired asset credit quality.
A thorough audit of a BOLI portfolio should focus on the following areas:
- Financial strength of the insurance carrier
- Policy performance
- Policy administration
- Commitment from carrier
An audit of a BOLI portfolio will, at the very least, confirm the product and services received under your existing BOLI arrangement is as good or better then what is currently available in the marketplace. If not, the banking organizations will be able to identify the strength of the plan, and improve upon its weaknesses to maximize profitability.