Solutions

Bank-owned Life Insurance (BOLI)

Bank-owned life insurance (BOLI) has been offered by the company since its founding in 2002. BOLI is an effective tool for a bank to help offset the rising cost of providing employee benefit plans through receiving tax-free life insurance proceeds if certain regulatory and tax code obligations are met.

Since the bank purchases life insurance on a portion of its highly-compensated employees with the intent to hold until maturity, it results in a relatively long-dated financial exposure for the banks that purchase this product. Therefore, the risk and return of the product needs to be carefully considered in selecting the appropriate BOLI product and provider.

BOLI comes in two distinct types: (i) general / hybrid account BOLI, and (ii) separate account BOLI. The distinguishing feature is whether the original premium(s) and investment growth are held in the general account of the insurance carrier or held in separate account of the insurance carrier that is bankruptcy proof from the insurance carrier’s creditors.

FSP only structures and sells separate account BOLI. A properly structured and institutionally priced FSP separate account BOLI can provide several important advantages over other BOLI offerings. These advantages include, but are not limited to, the following:

  • Bank’s credit exposure is to the securities held in the separate account and not to the insurance carrier as is the case with general/hybrid account BOLI.
  • FSP-structured BOLI will provide a fully guaranteed and transparent cost structure, including exactly how much commission is paid.
  • FSP-structured BOLI provides full tax and legal indemnifications to the bank on the BOLI transaction.
  • FSP-structured BOLI provides the bank with the flexibility to optimize the BOLI return on assets, return on capital, net yield and income volatility unlike any other product currently available in the market.

FSP has been able to continually grow its separate account BOLI business by innovating new and proprietary product designs to meet the evolving needs of its institutional clients while always structuring the insurance contract to meet the needs of its clients recognizing the long-term nature of the BOLI contract and the changing dynamics in the financial services industry and asset management strategies.

IRC Code 1035 Exchange

A testament to the advantages of the FSP separate account product design has been the steady growth of FSP’s 1035 exchange business from other general / hybrid account BOLI products into the FSP separate account BOLI product.

An IRC Code 1035 exchange allows a policyholder to exchange, tax-free, a current life insurance policy for another. Many banks own general/hybrid BOLI that has not performed as expected. This is especially true as the general/hybrid BOLI product ages and its shortcomings become more apparent. For those banks, a 1035 exchange may be a viable option.

There are several important considerations for the bank evaluating a 1035 exchange including 1035 exchange restrictions, which insureds can be included, and the applicable laws and regulations.

FSP has helped many banks achieve meaningful improvements in their BOLI portfolio by successfully executing a 1035 exchange.

Corporate-owned Life Insurance (COLI)

Corporate-owned life insurance has a similar contractual design to BOLI, but for FSP clients the asset management opportunity set expands. For example, investing in non-bank eligible investments, such as non-investment grade securities, becomes possible.

BOLI Administration

In addition to administering FSP-structured BOLI, FSP also consolidates the administration of other BOLI products and BOLI-related employee benefit plans for the bank.

This includes monthly accounting reports, regulatory reporting, annual reviews, and other periodic and ad hoc reporting for our clients. FSP works with its partner Westport HRH LLC, a wholly-owned subsidiary of October Three, LLC, to extend its capabilities across the administrative spectrum and clients work seamlessly with personnel across both firms.

Benefit Plan Funding

FSP also provides consulting services in the benefit funding area with its partner October Three Consulting LLC.

Among other services, the firms have been very successful in transforming non-qualified obligations into ERISA qualified plan benefits, providing lower cost to the client and better credit protection for the benefit plan participant.