Bank-Owned Life Insurance (BOLI) in Australia: 2025 Guide

Bank-Owned Life Insurance (BOLI) is an established financial strategy used by major banks worldwide—but what does it mean for the Australian landscape in 2025? As the financial sector navigates a shifting regulatory environment and rising competition, BOLI’s relevance is expanding. Here’s a deep dive into how BOLI works, why it’s on the radar, and what savvy investors and financial professionals should consider this year.

What Is Bank-Owned Life Insurance (BOLI)?

BOLI refers to life insurance policies that banks purchase on the lives of their key employees. The bank owns the policy, pays the premiums, and is the beneficiary. In return, the policy’s cash value grows tax-deferred, offering a stable asset on the balance sheet. Upon the insured employee’s death, the bank receives the death benefit, which can be used for executive compensation, benefit funding, or simply as a risk management tool.

• Cash Value Growth: BOLI policies accumulate cash value over time, providing banks with a low-risk, long-term asset.

• Tax Efficiency: The growth is tax-deferred, and death benefits are typically received tax-free.

• Strategic Use: Many banks use BOLI to offset costs of employee benefit programs or to enhance executive retention strategies.

Although BOLI originated in the US, its principles and benefits are increasingly being examined by Australian financial institutions, particularly as APRA (Australian Prudential Regulation Authority) continues to refine guidance on risk and capital adequacy.

Why Are Banks Turning to BOLI in 2025?

The 2025 financial landscape is marked by persistent low interest rates and stricter capital requirements. Banks are hunting for ways to strengthen their capital positions without sacrificing liquidity or taking on excessive risk. BOLI’s unique structure offers several advantages in this context:

• Stable Returns: BOLI policies offer returns that are generally more stable than many market-linked assets, appealing in volatile or uncertain periods.

• Capital Relief: In jurisdictions where regulators allow, BOLI can help banks meet certain capital or liquidity requirements.

• Executive Retention: With skilled talent in short supply, BOLI-funded benefit plans are used as golden handcuffs for key executives.

Recent APRA updates in early 2025 have clarified the treatment of insurance assets, prompting a number of regional banks to explore BOLI for the first time. For example, Bendigo and Adelaide Bank reportedly initiated a pilot BOLI program to help fund their long-term incentive schemes, following similar moves by some of the Big Four banks.

BOLI Risks and Regulatory Considerations in Australia

While BOLI offers compelling benefits, it’s not without risks—and the regulatory environment is evolving. Australian regulators are closely watching the integration of insurance assets into banking balance sheets, particularly in light of global lessons from the US and Europe.

• Regulatory Scrutiny: APRA’s 2025 updates require transparent disclosure of BOLI holdings and stress testing for policy performance under adverse scenarios.

• Counterparty Risk: The financial health of the insurer is crucial. If the insurer faces solvency issues, the value of the BOLI asset could be impaired.

• Reputational Concerns: There have been international cases where BOLI use raised questions about transparency and alignment with shareholder interests. Australian banks are under pressure to ensure clear communication with stakeholders.

In practice, most Australian banks limit BOLI to a small percentage of their total assets and work with top-rated insurers. There’s also a strong focus on ensuring that BOLI-funded benefit programs align with broader corporate governance standards and risk appetites.

The Outlook for BOLI in 2025 and Beyond

As Australian banks adapt to APRA’s evolving framework and seek new ways to manage capital and talent, BOLI is likely to play a growing—if still niche—role. Watch for continued regulatory developments, especially around disclosure and risk management, as well as potential innovation in policy design and benefit funding.

• New entrants: Regional banks and credit unions may increasingly adopt BOLI as the market matures.

• Product innovation: Insurers are tailoring BOLI products to meet Australian risk profiles and regulatory standards.

• Investor interest: Analysts are tracking BOLI’s impact on bank profitability and executive retention, making it a topic to watch in 2025 earnings reports.

For finance professionals, understanding BOLI’s mechanics and implications is more important than ever as the industry evolves.