October 2017


House Tax Reform Legislation Status

Kevin Brady, the Chairman of the House Ways and Means Committee, announced yesterday that the planned release of tax reform bill text would be delayed one day to Thursday, November 2.

He also stated, “We are pleased with the progress we are making and we remain on schedule to take action and approve a bill at our Committee beginning next week.”

We will provide updates as soon as possible once proposed legislation is released.



OCC Bulletin 2017-45 – Proposed Technical Changes to Annual Stress Test Regulations

On October 27, the OCC released a proposed rule which would make certain technical and conforming changes to the OCC’s Annual Stress Test rule (12 CFR 46).

It does not appear that any of these proposed changes will impact stress testing processes for BOLI programs under the rules.


OCC Bulletin 2017-47 – Proposed Rules to Simplify Capital Rules

On October 30, the OCC released Bulletin 2017-47, announcing a proposed rule that would simplify certain aspects of the U.S. Basel III capital rules. This appears to be substantively identical to the FDIC’s release that we reported on last month.

Again, we have reviewed the rule proposal and did not see any direct or indirect implications with respect to the treatment of BOLI programs.



NY Enacts New Requirements for Life Insurance Non-Guaranteed Elements

On September 19, the NY Department of Financial Services (NY DFS) issued a press release announcing a final regulation intended to increase consumer protections for resident policy owners from ”unjustified” life insurance premium increases.

Under the new rule (Insurance Regulation 210), insurance companies will be required to provide more advance notice and more supporting documentation evidencing compliance under NY law with respect to adverse changes to any Non-Guaranteed Elements (NGEs). This rule was implemented as a direct result of recent developments where insurers significantly increased cost of insurance rates on seasoned policies.

In reviewing the underlying regulation, we were interested to observe that the rule broadly excludes BOLI and COLI policies. We contacted the NY DFS to inquire about the exception and were informed by a person familiar with the matter that the exclusion was provided in response to industry request and the NY DFS believed the markets and purpose of the contracts were sufficiently different to merit the exclusion.

Insurance industry trade groups, including ACLI and LICONY, were active commenters on this rule.


BOLI Publication – Author Advocates for Elimination of BOLI/COLI Tax Advantages

The October 16 edition of Tax Notes (subscription required) included an article titled: “End (Finally) the BOLI and COLI Tax Subsidy.” In this 14-page article, the author, David I. Walker, (professor of law and Maurice Poch Faculty Research Scholar at Boston University School of Law) ultimately advocates for the elimination of tax advantages for BOLI/COLI.

He proposes a couple potential reform alternatives, including:

  1. Applying accrual taxation to the inside build-up of contracts, or
  2. Maintaining the existing tax deferral but taxing death benefit proceeds.

The author was receptive to maintaining the treatment of “key person” insurance, but only if the definition of the term is narrowed (e.g., to use section 264(e)(3)’s standard that limits the maximum number of key persons for a taxpayer to 20 individuals).