Press Release - JULY 05, 2018

Best’s Market Segment Report: Insurers’ Holdings in Corporate-Owned Life Insurance on the Upswing


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 George Hansen
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FOR IMMEDIATE RELEASE

OLDWICK - JULY 05, 2018
U.S. insurance companies’ holdings in corporate-owned life insurance (COLI) assets have steadily increased over the past five years to $23.8 billion in 2017 from $18.1 billion, according to a new A.M. Best report.

The Best’s Market Segment Report, titled, “Increased Focus on COLI Growth,” notes that life/annuity (L/A) insurers have seen the largest increase in COLI assets, with the amount of write-in assets growing to $17.7 billion in 2017 from $12.8 billion in 2013. Meanwhile asset growth among property/casualty (P/C) companies have grown at a more even pace, to just over $5 billion at year-end 2017 from $4.2 billion in 2013, while health companies had modest pick-ups in COLI assets to $929 million in 2017. The report also shows that there is a much higher percentage of L/A insurers with COLI assets exceeding 10% of capital and surplus compared to P/C and health companies. A.M. Best uses this threshold to determine concentration risks.

According to the report, companies are using COLI increasingly as a way to fund a variety of executive benefit obligations, such as employee retirement and medical benefits and deferred compensation plans. COLI also is used to protect businesses in the event of the death of key employees or business owners. When properly structured, COLI plans enjoy tax-free build-up cash values, death benefits are received tax-free and loan and withdrawal features give employers added flexibility. While COLI asset growth among L/A insurers can be attributed to increases in cash surrender values resulting from investment gains and interest credits, several L/A insurers have either initiated COLI programs or made substantial additions to existing COLI policies over the past few years.

A.M. Best expects COLI to continue serving as an attractive source of funding for various employee benefits, as long as insurance policies enjoy the tax-favored status of the cash value build-up and death benefit proceeds. However, changes to tax laws could impact COLI sales, given that reductions to tax rates make tax-favored vehicles less attractive. With the current reduction in corporate tax rates to 21% from 35%, COLI will remain a viable benefit funding alternative for insurance companies when determining tax strategies; however, the tax paying status of insurers in some instances may diminish the advantages of COLI.

For the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=275390 .

A.M. Best is the world’s oldest and most authoritative insurance rating and information source.