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BOLI Assets Rise 11% In 1st Half

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Large bank holding companies and stand-alone banks reported bank-owned life insurance assets of $108.6 billion in the first 6 months of 2007, up 11.1% from $97.6 billion in the first half of 2006, according to a new study.

As many companies do with corporate-owned life insurance, banks use BOLI to recover the cost of supplemental employee health insurance benefits and to offset the liabilities of retirement benefits.

The study by Michael White Associates, Radnor, Pa., found that BHCs with assets of at least $500 million boosted BOLI holdings by 11.8%, from $94.4 billion in the first half of 2006, to $105.6 billion in first half 2007.

Among the study’s other findings:

–BHCs with assets over $10 billion in assets showed the largest increase in total BOLI assets, from $82.7 billion in first half 2006 to $92.8 billion in the same period of 2007, up 12.2%.

–BHCs with assets between $1 billion and $10 billion had the highest share of BOLI assets, with 306 of 365 BHCs, or 84%, reporting such assets in the first 6 months of 2007. This was up from 285 out of 344 BHCs, or 83%, in 2006.

–689, or 80% of BHCs, reported holding BOLI assets in the first half of 2007, up 4.2%, from 661 BHCs in the comparable period of 2006.

–The biggest increase in the number of BHCs reporting BOLI assets was seen among those with $1 billion to $10 billion in assets, increasing 7% from 285 in first half 2006 to 306 in first half 2007.

Michael White, head of the firm conducting the study, notes the Federal Reserve Bank recommends that BOLI assets should not exceed 25% of a bank’s Tier 1 assets – which are a measure of a bank’s core financial strength – plus an allowance for loan and lease losses. The survey found banks well within that limit, which is meant to assure they remain securely liquid in the event of a capital crisis.

Mean BOLI assets as a fraction of this measure was 13.6% in the first half of 2007, up slightly from 13.2% in the same period a year earlier, MWA found in its study, which was sponsored by Mullin TBG, Los Angeles, an executive benefits firm.

Banks with over $10 billion had the highest BOLI ratio, at 16.4% in first half 2007, up from 15.9% a year earlier. Among banks with $1 billion to $10 billion in assets, the figure was 13.1%, up from 12.4%, and for banks with $500 million to under $1 billion, it was 13.4%, virtually unchanged from a year earlier.

This ratio was considerably lower than year-end 2005, when it stood at 20.1% for all BHCs. MWA points out, however, that the decrease was largely due to a reporting requirement change by the Federal Reserve.


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