Pub. 5 2015-2016 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S July • August 2015 13 guarantees a minimum crediting rate of 1.00 percent to 2.00 percent. The enhancement that many banks find attractive is that if the carrier ever becomes insolvent, the assets in the sep- arate account are segregated from the general creditors of the carrier. Essentially, the assets in the separate account serve as collateral for the cash value of the policies. Hybrids have only been available in to BOLI marketplace for approximately 13 years compared to 33 years for general account products, so the total asset value is lower, but the growth rate is greater. The largest portion of BOLI assets continues to be held in variable separate account policies (47.6 percent of total BOLI assets). However, only 1.1 percent of this total was held by banks with less than $1 billion of assets. Like hybrid separate account products, the assets in a variable separate account are segregated from general creditors in the event of the carrier’s insolvency. However, gains and losses of the underlying investment portfolio are passed through directly to the policyholders. While most banks that have purchased variable separate accounts policies utilize “stable value” wrappers to reduce the accounting volatility, the complexity of the product has made it more suitable to larger banks than to smaller banks. It is also interesting to note that median BOLI assets rose from 7.6 percent to $3.98 million in 2014 from $3.70 million in 2013, and that the median ratio of bank BOLI assets to Tier 1 Capital increased from 17.46 percent of capital in 2013 to 17.67 percent of capital in 2014. New Policies in 2014 In 2015, IBIS Associates, Inc., an independent market re- search firm, published a report analyzing BOLI purchases last year based on information obtained from carriers that market BOLI products. According to that report: • Life insurance companies reported placing 1,175 BOLI cases in 2014 representing about $3.21 billion in premi- um. The 1,175 cases included banks purchasing BOLI for the first time as well as additional purchases by banks that already owned BOLI. • Of the $3.21 billion in new premium, $2.48 billion (77.2 percent) was put into general account; $698.4 million (21.7 percent) into hybrid separate account; and $35.6 million (1.1 percent) into variable separate account. • Of the 1,175 cases placed, 494 (42.0 percent) were under $1 million in premium; 341 (29.0 percent) were between $1 million and $2 million; 242 (20.6 percent) were be- tween $2 million and $5 million; 75 (6.4 percent) were between $5million and $15million; and 23 (2.0 percent) were over $15 million. The Market’s Future The near term trend in the marketplace is for higher general account and hybrid separate account purchases and relatively few variable separate account purchases. Finally, the amount of BOLI assets held by U.S. banks is expected to increase annually by 3 percent to 4 percent based on recent results.  Hi X 2015 ABA MARKETING & RETAIL CONFERENCE OCTOBER 4–6 / DENVER COLORADO HIGHER EXPECTATIONS AIM HIGH! Your customers expect more, and so should you. Come and be inspired, surprised, challenged and engaged. Rise to the challenge of higher expectations. Raise the level of your professional performance. Bring your retail banking, sales and marketing team! Register now for the ABA Marketing and Retail Conference. Early Bird and Team Discounts! Register today by visiting aba.com/HiX Or call 1-800-BANKERS. Tags: Boli, compensation Ken Derks is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact Ken Derks at 469-252-1037 or kderks@equiasalliance.com. David Shoemaker, CPA/PFS, CFP®, is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact David Shoe- maker at 901-754-4924 or dshoemaker@equiasalliance.com.