Neither federal nor state regulators collected comprehensive data on the uses and prevalence of business-owned life insurance. Although no comprehensive data were available on the uses of such policies, businesses may purchase life insurance to ensure recovery of losses in the event of the untimely death of key employees and to fund pre- and postretirement employee benefits. Accounting standards require that the future costs of postretirement benefit plans be recorded as liabilities at their present value on current financial statements. The accounting standards do not require that such liabilities be directly offset with specified assets. However, businesses may choose to fund such future costs using life insurance, thereby becoming eligible for tax-free policy earnings and tax-free death benefit payments on the policies. When businesses use nonqualified plans to provide postretirement benefits, they avoid the funding and other restrictions of tax-preferred qualified plans, while retaining control over the plan assets. Federal bank regulators did not collect comprehensive data on the uses and prevalence of business-owned life insurance by banks and thrifts, although they collected some financial information on such policies as part of monitoring the safety and soundness of individual institutions. Regulatory officials said that they collect this information to support their supervision of individual institutions. For supervisory purposes, banks and thrifts are only required to disclose the cash surrender value of business- owned life insurance and earnings from these policies in their quarterly financial reports to the regulators if the amounts exceed certain thresholds. For example, the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, and Office of the Comptroller of the Currency (OCC) require the institutions they regulate to disclose the cash surrender value of policies worth more than $25,000 in aggregate and that exceed 25 percent of “other assets,” which include such items as repossessed personal property. The Office of Thrift Supervision (OTS) requires the thrifts it supervises to report the cash surrender value of policies if the value is one of the three largest components of “other assets.” In addition to the banks and thrifts that meet a disclosure threshold, other institutions sometimes voluntarily provide data on their business-owned life insurance policies. Our preliminary results indicated that about one-third of banks and thrifts, including many of the largest institutions, disclosed the value of their business-owned life insurance holdings as of December 31, 2002, either voluntarily or because they met the reporting threshold. The remaining two-thirds either did not meet the reporting threshold or did not own business-owned life insurance. We found that 3,209 banks and thrifts (34 percent of all institutions) reported the cash surrender value of their policies at $56.3 billion. Twenty-three of the top 50 banks and thrifts— ranked by total assets—reported owning policies worth $36.9 billion, or 66 percent of the reported total of all banks and thrifts. Overall, 259 large banks and thrifts—those with assets of $1 billion or more, including those among the top 50—held 88 percent, or $49.4 billion, of the total reported cash surrender value of business-owned life insurance. The quarterly reports that commercial banks and FDIC-supervised thrifts submitted did not require them to categorize business-owned life insurance policies according to their intended use. OTS-supervised thrifts, in contrast, were required to report the value of their key-person policies and the value of business-owned life insurance policies held for other purposes as separate items, if they met the reporting threshold. However, since the disclosure threshold applied separately to the two categories, OTS-supervised thrifts could be required to report on only one type of policy, rather than the total value of their business-owned life insurance holdings, even if they held both key-person and other policies. According to SEC, agency regulations do not specifically require public companies to disclose the value or uses of business-owned life insurance in the financial statements submitted to the agency. The federal securities laws that SEC administers are designed to protect investors by requiring public companies to disclose information that is “material” to investors in their financial statements—that is, according to SEC, information that an investor would consider important in deciding whether to buy or sell a security or in making a voting decision related to a security that the investor owns. SEC officials said that for most companies, business-owned life insurance holdings are not likely to be material to the company’s financial results, and therefore would not be subject to SEC reporting requirements. IRS officials told us that the agency has not collected comprehensive information on the value of or income from business-owned life insurance policies, and agency officials said that they do not need this information. Specifically, businesses are generally not required to include the earnings or death benefits from business-owned life insurance in their taxable income. Businesses that are subject to the alternative minimum tax include income from death benefits and earnings from insurance when calculating the tax, but they are not required to list the insurance-related values or the uses of the policies on the alternative minimum tax form. Also, businesses that are required to complete Schedule M-1, Reconciliation of Income (Loss) per Books with Income per Return, as part of their Form 1120, U.S. Corporation Income Tax Return, would report earnings on business-owned life insurance as part of the income recorded on their books but not on the tax return. However, according to IRS officials, these earnings might not be separately identified as they are often “lumped” with other adjustments. State insurance regulators, concerned with state requirements, rates, and solvency issues, have collected extensive financial information from insurers, but not at the level of detail that would describe the uses or prevalence of business-owned life insurance policies. State insurance regulators use insurers’ financial statements to monitor individual companies’ solvency, and aggregate information on business-owned life insurance has not, in state regulators’ views, been necessary for such monitoring. Insurers’ financial statements list the number of all policies in force and premiums collected during the reporting period, but broken out only by individual and group policies, not by whether businesses or individuals owned the policies. In an effort to compile more comprehensive data on business-owned life insurance, we worked with the representatives of six insurance companies and the American Council of Life Insurers (ACLI) to develop a survey of the uses and prevalence of business-owned life insurance sales. Although the insurance companies’ representatives cooperated in a pretest of the survey, and ACLI representatives said that they would encourage their members to participate in the survey itself, the results of the pretest led us to conclude that we would not be able to obtain sufficiently reliable data to allow us to conduct the survey. These representatives told us that they do not have a business need to maintain the comprehensive data on business-owned life insurance that we needed for the survey. They said that insurers do not routinely summarize information on the numbers of policies and insured individuals, cash surrender value of policies, and uses of business-owned life insurance. They explained that various factors made it difficult to obtain summary information, including that individual businesses may own multiple policies; that the same individuals may be insured under multiple policies; and that when purchasing policies, businesses may state multiple policy uses or policy uses may change over time. They also explained that extensive efforts would be required for insurance companies to obtain information from their computer systems and, in some cases, paper files to identify business-owned policies on employees where the business is also the beneficiary. Our preliminary review of the financial statements of 32 life insurance companies that filed 10-K annual reports with SEC and that were among the 50 largest such companies ranked by assets, disclosed some information on business-owned life insurance. Although SEC did not require insurance companies to identify business-owned life insurance sales in their annual statements to the agency, nine insurers reported over $3 billion in business-owned life insurance premiums from 2002 sales. Five of the insurance companies also reported that total premiums from 2002 business-owned life insurance premiums ranged from 10 to 53 percent of each company’s 2002 total life insurance sales premiums. In addition, three insurance companies reported the value of their business-owned life insurance assets as totaling about $28 billion as of December 31, 2002. Insurance companies have also reported business-owned life insurance sales in response to industry surveys. CAST Management Consultants, Inc., conducts research on business-owned life insurance and, in a summary report, estimated 2002 annual business-owned life insurance premiums of $2.1 billion, based on the survey responses of 20 insurance carriers increased by CAST adjustments. CAST representatives declined to provide us any information about the complete survey, which is available only to “qualified market participants.” We could not, therefore, determine whether CAST was able to collect the information we sought to obtain by conducting our own survey. In addition, a representative of the A.M. Best insurer rating company said that the company collects information on business-owned life insurance, but does not currently report the data. A.M. Best reported aggregate premiums from business- owned life insurance for 1998 (the last year for which it reported data) as more than $10 billion for 20 large insurers. Some businesses included anecdotal information about how they intended to use business-owned life insurance in the annual financial statements they filed with SEC. Our preliminary analysis of 100 randomly selected Fortune 1000 public companies’ financial statements filed with SEC showed that 15 of the selected businesses referred to owning such policies, including 11 that provided information about their intended uses of the policies. The most commonly cited use of business-owned life insurance was to fund deferred executive compensation. One business reported using policies to help fund postretirement health care benefits, and another reported using the policies to help fund an employee benefit plan for management employees as well as executives. Some businesses have also provided survey responses on their uses of business-owned life insurance to fund executive benefit plans.