Insurers stress liquidity and lapse risk amid concern over interest rate spike

When surrender is an option

White flag

For banks, liquidity risk is one of the hottest topics in town. However, insurers – and insurance regulators – are often quick to point out that liquidity risk is less of an issue for their industry than it is for their financial services cousins. Yet, insurance firms have failed due to liquidity risk issues and, in particular, weak surrender and lapse risk management.

For example, in August 1999, US insurer General American Life Insurance Company had to seek state insurance department

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