The Interagency Statement on the Purchase and Risk Management of Life Insurance (OCC 2004-56) provides general guidance for banks and savings associations regarding supervisory expectations for the purchase and risk management for bank owned life insurance (BOLI). Among the conservative banking practices discussed in this interagency statement is the need for senior management and board oversight of BOLI, including both a thorough pre-purchase analysis of risks and rewards and post-purchase risk assessment. The guidance discusses the permissibility of BOLI purchases and holdings, as well as their risks and associated safety and soundness considerations.
The Interagency Statement highlights the following supervisory guidance required before entering into a BOLI contract:
- Effective senior management and board oversight policy;
- Comprehensive policies and procedures, including appropriate limits;
- A thorough pre-purchase analysis of BOLI products; and
- An effective ongoing system of BOLI risk assessment, management, monitoring, and internal control processes, including appropriate internal audit and BOLI compliance frameworks.