man holding calculator doing accounting

For credit unions that are investing in traditional securities under Section 20 of their Call Report — as an otherwise impermissible investment to offset benefit expenses — recent standards require mark-to-market accounting treatment.

Here, Scott B. Hinkle, J.D., CFP, and Principal at Acumen Insurance Solutions, talks about mark-to-market accounting.

Let’s get started.

What is Mark-to-Market Accounting?

Mark-to-market accounting is defined as “an accounting practice that involves adjusting the value of an asset to reflect its value as determined by current market conditions. The market value is determined based on what a company would get for the asset if it was sold at that point in time.”

Why Is This a Problem?

This can be problematic for credit unions as the volatility of underlying asset classes, even if intended to be held long-term, ultimately has an effect on current net income. These institutions might want to consider credit union-owned life insurance as an alternative.

Why Should a Credit Union Invest in Credit Union-Owned Life Insurance?

So, why should a credit union consider investing in credit union-owned life insurance (COLI/CUOLI) as opposed to the other otherwise impermissible investment options that are available under Section 20?

  1. It’s Safe: Credit union-owned life insurance policies are issued by insurance carriers that have been around 100 to 150 years.
  2. It’s Liquid: In the event that you choose to redeploy all or a portion of your capital elsewhere, you have the ability to do so without penalty for exit.
  3. It Provides Meaningful Rates of Return: These policies are currently earning very meaningful rates of return. In fact, they sit somewhere between 2½% and 5.0%, depending upon the class of policy selected, with guarantees against loss and without direct market exposure.*

Lastly, and most relevant to this article, since credit union-owned life insurance is so safe, it virtually eliminates any concern about a negative impact on the current net income statement, as compared to traditional securities.  

If you haven’t given credit union-owned life insurance a look in the recent past, now might be a good time to do so. Read on to learn more about the benefits of credit union-owned life insurance.

*Disclaimer: These policies are not considered securities. Guarantees are based on the claims-paying ability of the insurance carrier. Policies are not FDIC-insured. Pricing can be based on many factors, including the insured’s age, gender, and health. Please refer to a current policy illustration for details.