A risk analysis of stable value protection for bank-owned life insurance
by David Kwun, Cyrus Mohebbi, Andrew Line, Yong-Tai Tsai
International Journal of Applied Decision Sciences (IJADS), Vol. 2, No. 4, 2009

Abstract: Bank-owned life insurance is an increasingly popular tool used by banks to fund the compensation and benefit plans that banks provide to their executives. Assets held within bank-owned life insurance (BOLI) policies now exceed $126 billion and thanks to its tax-efficient status, these policies will likely remain a core investment for banks for the foreseeable future. These policies can be further enhanced using stable value protection (SVP) which allows banks to apply book-value accounting to their investment. Using a Monte-Carlo-based stochastic interest rate model, the paper explores the risk profile and sensitivities of the most common stable value swaps and proposes several simple design innovations which can be tailored to improve the risk profile for both the issuer and purchasers.

Online publication date: Sun, 24-Jan-2010

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