Bank-Owned Life Insurance · BOLI
How much BOLI
can a bank hold?
Regulators do not set one fixed dollar limit. They expect each bank to keep its bank-owned life insurance within prudent limits relative to its capital, and they have named a general guideline for where scrutiny rises.
Quick answer
- Bank regulators consider it generally not prudent for a bank to hold BOLI with a total cash surrender value above 25 percent of its capital. For most banks, that capital figure is Tier 1 capital plus the allowance for loan and lease losses (now the allowance for credit losses at most banks).
- The 25 percent figure is a general guideline from the 2004 Interagency Statement, not a hard cap. A bank that plans to go above it, or above its own lower limit, is expected to get board approval first and to justify the decision.
- Your bank's actual limit is set by your board, within your regulator's expectations.
Where the 25 percent guideline comes from
In December 2004 the OCC, the Federal Reserve, the FDIC and the Office of Thrift Supervision issued the Interagency Statement on the Purchase and Risk Management of Life Insurance. The OTS has since been folded into the other agencies, but the statement still guides how examiners look at BOLI today.
The statement says that, given the liquidity, operational and legal risks of BOLI, it is generally not prudent for a bank to hold BOLI with a total cash surrender value above 25 percent of its capital. Capital here is measured under each regulator's concentration guidelines. For most banks, that means Tier 1 capital plus the allowance for loan and lease losses.
It is a guideline, not a hard cap. A bank that plans to buy BOLI that would push it over 25 percent, or over its own lower internal limit, is expected to get prior approval from its board or the right board committee. Management is also expected to show that the higher amount is not an imprudent concentration of capital. As a bank gets close to that level, examiners can be expected to look more closely.
Your bank sets its own limit
The 25 percent figure is a ceiling for scrutiny, not a target. Each bank is expected to set internal limits that fit its own risk profile, and many set them well below 25 percent. Those limits are approved by the board and reviewed with the bank's regulator in mind. Good limits usually cover two things: the total cash surrender value as a share of capital, and how much is held with any single insurance carrier.
What regulators expect before and after a purchase
Board and senior management oversight
The board understands why the bank holds BOLI, approves the limits, and sees regular reports on how the policies are doing.
A pre-purchase analysis
Before buying, the bank documents the purpose, the amount of insurance it needs, the product's risks and rewards, and how it fits the bank's capital and liquidity.
Carrier credit monitoring
The cash value is a claim on the insurance company. The bank tracks each carrier's financial strength and keeps its exposure to any one carrier within limits.
Liquidity and concentration review
BOLI is meant to be held long term, and getting cash out early can be costly. The bank checks that its holdings still make sense next to its capital and liquidity needs.
Why the number moves even when the policies do not
The ratio has two parts: the cash surrender value on top and capital on the bottom. Cash value grows each year as the policies earn interest. Capital moves with earnings, dividends, growth and acquisitions. A bank that bought BOLI at 15 percent of capital years ago may be at a very different level now without buying anything new. That is one reason regulators expect ongoing monitoring, not a one-time check at purchase.
Where a benchmark fits
A concentration check tells you how much BOLI you hold. It does not tell you whether those policies are still competitive. That is the job of an independent benchmark, which compares your existing policies against today's market. Read what a BOLI benchmark is, or start with the BOLI overview.
Frequently asked questions
Is 25 percent of capital a legal limit on BOLI?
No. It is the general guideline in the 2004 Interagency Statement. The regulators said holding BOLI above 25 percent of capital is generally not prudent, and that a bank planning to go above it should get prior board approval and be ready to justify it.
What counts as capital for the BOLI concentration test?
The statement measures capital under each regulator's concentration guidelines. For most banks that means Tier 1 capital plus the allowance for loan and lease losses. Confirm the exact figure with your regulator and your auditors.
Can a bank set a limit lower than 25 percent?
Yes, and many do. The statement expects each bank to set its own internal limits, including limits on how much it holds with any one insurance carrier.
What happens if a bank's BOLI is near the 25 percent level?
Examiners can be expected to look more closely at how the bank manages the risk. Strong records, a clear purpose and ongoing monitoring make that review easier.
Educational content only. This is not tax, legal, accounting or regulatory advice. Every bank's situation is different. Review any BOLI decision with your CFO, your auditors, your legal counsel, and your CPA or tax professional, and keep your regulator's expectations in view. Policy values depend on the terms of each contract and the financial strength of the issuing insurance company.
Find out where your BOLI stands
A short call, an independent comparison, and a clear answer. No change of agent of record is needed. Request a BOLI review, read the BOLI overview, or call +1 (586) 899-1003.
Keep Reading
More in Bank-Owned Life Insurance
Sources
Interagency Statement on the Purchase and Risk Management of Life Insurance (OCC Bulletin 2004-56) · 26 U.S. Code 101 · 26 U.S. Code 1035
Educational content only.