Navigating Inherited BOLI Programs Post-Merger
As the financial landscape continues to evolve, the environment for bank mergers and acquisitions (M&A) is becoming more prevalent.
While bank consolidation offers many strategic benefits, it also brings new challenges, including the inheritance of the acquired bank’s bank-owned life insurance (BOLI) program. The long-dated nature of life insurance policies adds ownership complexity, especially when those with product and historical knowledge of the acquired BOLI program are no longer with the bank.
Key points
- Bank acquisitions often involve inheriting new BOLI policies. Mergers can bring added complexity, greater administrative demands, and new relationships with counterparties and vendors. Without proper understanding and due diligence, the acquiring bank may miss opportunities to optimize the new BOLI program or expose itself to unforeseen risks.
- BOLI is a specialized product. Because of its unique structure, effective management of a BOLI program requires a distinct level of expertise, especially when portfolios are inherited through a merger and the acquiring bank may not have had sufficient opportunity to fully understand the objectives underlying the acquired bank’s BOLI program.
- Reviewing acquired BOLI programs is recommended. A full review and evaluation of the acquired BOLI program, and the program’s administrator, can help those responsible for oversight of the BOLI program identify areas for improvement, including potential administrative consolidation, and even lead to the discovery of unpaid claims and other potential issues and optimization opportunities.
Why financial institutions need expert review of inherited BOLI programs
When a financial institution acquires another bank, it may inherit BOLI policies that were purchased with potentially different goals and risks tolerances than those of the acquiring bank. These inherited BOLI policies can introduce new and different operational and financial risks that should be uncovered and analyzed at the time of acquisition.
Some acquiring banks may not have team members with the time and expertise to conduct a full review of inherited BOLI programs, which can present new a new set of tax, accounting and regulatory issues. Inherited BOLI programs may be administered by new and unfamiliar providers, which can further complicate integration and oversight.
Therefore, a best practice for acquiring banks is engagement of BOLI experts who can thoroughly review and document key provisions, risks, and opportunities in the newly inherited BOLI policies.
Why financial institutions should consider a third-party to review their BOLI program
An independent assessment of newly inherited BOLI policies can provide an objective, side-by-side comparison of policy structures, key provisions, risks and opportunities, helping institutions determine whether consolidation, restructuring, or policy replacement is warranted. A third-party review also ensures that the BOLI program aligns with the institution’s current goals, while identifying areas to improve policy performance and efficiency.
Newport: A trusted partner for financial institutions managing BOLI programs
As a leader in institutional insurance, Newport, an Ascensus company, brings over 30 years of experience designing, implementing, and administering BOLI programs. With a team of 75 dedicated BOLI professionals, Newport offers deep expertise across all types of BOLI structures and carriers.
If your institution has recently acquired a BOLI program from another bank, or is in the process of doing so, Newport provides diagnostic evaluations and works side-by-side with your organization to identify the best solution tailored to your organization’s needs.
Our end-to-end BOLI evaluation services include:
- Comprehensive policy review: Analysis of all existing BOLI contracts, including policy types, carriers, key provisions, performance benchmarking, cash flow modeling, lapse risk.
- Carrier assessment: Independent evaluation of the financial strength and long-term viability of the insurance carriers.
- Benefit plan analysis: Review of any associated benefit plans and funding adequacy analysis to ensure there are no shortfalls and reporting needs are met and review of change of control provision triggering.
- Administrative benchmarking and regulatory compliance: Review of servicing and reporting capabilities of the current vendors to uncover gaps in compliance or efficiency.
- Investment analysis: Review of associated investment policy statements, asset allocations and their fund performance, associated stable value wraps, as well as incorporated interest rate sensitivity testing.
- Nonqualified deferred compensation (NQDC) plan assessment: NQDC plan experts can conduct a complimentary Plan Diagnostic to help you optimize your plan or guide you through establishing a new one.
For more information about how Newport can help you identify and craft the ideal BOLI solution, please contact us.
