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Pre-Purchase Analysis
The objective of the pre-purchase analysis is to help ensure that the institution understands the risks, rewards, and unique characteristics of BOLI. The nature and extent of this analysis should be commensurate with the size and complexity of the potential BOLI purchase and should also take into account existing BOLI holdings. A mark of a well-managed institution is the maintenance of adequate records concerning its pre-purchase analysis, usually including documentation of the purpose and amount of insurance needed. Interagency Statement on the Purchase and Risk Management of Life Insurance OCC 2004-56 (December 7, 2004) "An institution should be aware that the vendor's financial benefit from the sale of insurance may provide the vendor with an incentive to emphasize the benefits of a BOLI purchase to the institution without a commensurate explanation of the associated risks. Therefore, reliance solely upon pre-packaged, vendor-supplied compliance information does not demonstrate prudence with respect to the purchase of insurance. " Office of Thrift Supervision RB 32-26 (July 31, 2002) "Institution management and the board of directors cannot rely solely on a third-party analysis of the benefits of BOLI, such as one that a vendor or carrier of the product may prepare. OTS considers this an inappropriate transfer of the fiduciary responsibilities of the board and management to an outsider with a vested interest in selling product. " |
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