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Financial Institution Letters
Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of Thrift Supervision

Interagency Statement on the Purchase and Risk Management of Life Insurance

December 7, 2004
Purpose

This interagency statement provides general guidance for banks and savings associations (institutions) regarding supervisory expectations for the purchase of and risk management for bank-owned life insurance (BOLI). It also provides guidance for split-dollar arrangements and the use of life insurance as security for loans. The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) (agencies) are providing this guidance for institutions to help ensure that their risk management processes for BOLI are consistent with safe and sound banking practices. Among the safe and sound 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 appendix to this document contains a discussion of insurance types and the purposes for which institutions commonly purchase life insurance, as well as a glossary of BOLI-related terminology.

The guidance in this interagency statement for the pre-purchase analysis of life insurance applies to all BOLI contracts entered into after the date of this interagency statement. The guidance concerning the ongoing risk management of BOLI subsequent to its purchase applies to all holdings of life insurance regardless of when purchased. Institutions that purchase life insurance after the date of this interagency statement that are not in compliance with this guidance may be subject to supervisory action. Institutions that entered into BOLI contracts before this date will be evaluated according to each agency's pre-purchase guidance in effect at that time.

Compliance with the supervisory guidance in this interagency statement regarding permissible uses for insurance (e.g., recovery of the costs of providing benefits) does not determine whether the policy satisfies state insurable interest requirements.

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Last Updated 12/07/2004 communications@fdic.gov