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Paper 2007 AM - Q6 Part B - Risk tolerance of Life Insurance co.
Paper 2007 AM - Q6 Part B
Dont understand why the liquidity need for a life insurer increases with a larger share of fixed-rate annuities in the product line, thus lowering risk-taking ability.
Is it because the fixed-rate liabilities are being ALM matched/funded by fixed-rate assets/investments ?
Answer says: Fixed-rate annuities need a higher level of liquidity to meet the CURRENT periodic payouts to annuity holders.
as the investment portf is segmented, wdnt the current payouts be met by the investment cash flows (since ALM matched) that match the fixed-rate annuity payouts required ? and the whole life and Term life product payout requirements are met by their respective matched assets ?
Thanks very much