John Hancock Life Insurance Co., which since 1996 has insured large banks for payouts they must make when key executives die, has introduced its first such product for small and medium-size banks.

Banks buy "bank-owned life insurance," or BOLI, to cover benefit plan expenses such as life insurance as well as qualified and nonqualified deferred compensation. The bank is the policy beneficiary.

"The large-bank market has dried up a bit, because most of the bigger banks have made their purchases," said Karl Reinhold, Hancock's executive director of executive compensation. "We had $800 million in premiums for 1996 and 1997 combined," but that has dropped precipitously in last couple of years, he said.

"With the market moving in the community bank direction, we think we can get a chunk," Mr. Reinhold said.

Hancock's Small Bank BOLI is a single-premium universal life policy. It is available in three premium bands: between $500,000 and $5 million, between $5 million and $10 million, and between $10 million to $15 million. Hancock does not band its large-bank policy, whose typical policy is for $15 million to $25 million, Mr. Reinhold said.

The policy generates tax-free interest at new money rates. Hancock guarantees its crediting rate for the first 12 months.

Boston-based Hancock will face stiff competition from Zurich Kemper, New York Life, MassMutual, and Safeco, all of which have been players in the small-bank market for longer, Mr. Reinhold said.

"The market really got going around 1991," he said. "We think there is another five or six years of growth," as not all the community banks own such coverage.

In premiums, the market is split evenly between larger and community banks, according to Tom Wamberg, chairman and chief executive officer of Clark/Bardes Consulting of North Barrington, Ill. "The products are different only in that the smaller banks pay more" per dollar of coverage, he said. "The smaller the transaction, the higher the charge. It's economies of scale."

Clark/Bardes advises banks on executive benefits and sells BOLI products as well. It claims to work with 1,400 banks, including about 135 with assets over $1 billion.

Banks usually pay up front for BOLI policies. Nonbanks, typically shorter of cash, tend to pay annual premiums for similar "company-owned life insurance."

The Clinton administration had sought to disallow tax deferral on the interest these products generate, Mr. Wamberg said, "but none of this is going to happen now, with President Bush."


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