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Why do Insurance Carriers own COLI (Corporate Owned Life Insurance)? 5 Reasons why COLI is a Compelling Investment for the General Account of both Life and P&C Insurance Carriers

February 25, 2019

COLI is permanent institutional life insurance which includes an investment component called a cash surrender value. The cash surrender value will grow and compound tax-free from day one generating enhanced earnings for the company as compared to other investments. 

 

COLI has been utilized as an acceptable investment for over 30 years by corporations, banks and insurance companies.

 

 

Why are insurance carriers investing in COLI?

 

1) Protecting the carrier from the loss of a key employee

  • Death benefit paid the insurance carrier

 

2) Benefit for Key employees

  • Use a portion of the death benefit for family protection

  • Financing non-qualified employee benefits

 

3) Tax-deferred or tax-free earnings

  • Policy cash values grow tax-free generating enhanced earnings

    • No taxation on investment reallocation

    • No taxation on policy gains until surrender

    • Tax-free if held to maturity

  • Especially effective with tax-inefficient assets

  • Positive cash on cash growth from day one

 

4) Expansive investment choices

  • Fund manager examples include Janus, Fidelity, Dimensional, Lord Abbett, Black Rock, American Funds, and many others

  • Multiple investment styles - Equities, Fixed Income, Hedge Funds, Domestic, and International

  • Can replace existing assets with ones similar

  • Has the possibility of significantly improving RBC risk charge

 

5) Regulatory balance sheet improvement

  • Favorable RBC (risk-based capital) risk charge

    • Admitted Asset

    • 0% RBC charge for life carriers and 5% RBC charge for P&C carriers

 

Clear Regulatory Guidance

  • IRS 7702, IRC 101(j), 264(f)

  • FASB 115, 85-4

  • NAIC

 

Most of the major carriers have purchased COLI, including:

  • New York Life

  • Prudential

  • Nationwide

  • MetLife

  • Allstate

  • MassMutual

  • John Hancock

  • Lincoln

  • Liberty Mutual

 

COLI (corporate owned life insurance) is an asset that has been owned by banks and corporation for many years.  An insurance carrier should take an hour to understand the unique regulatory capital and tax improvements gained by retitling a portion of their investable assets into COLI. 

 

Learn more about our COLI services.

 

 

 

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