A nonlife insurance company is facing the end of its underwriting cycle. What should the firm do with respect to the duration of its fixed-income portfolio and the liquidity constraints in its policy statement? The duration of the nonlife insurance companys fixed-income portfolio should be:
| A) | lengthened in expectation of decreasing claims, and the investment policy statement should reflect the possibility of a decreasing claims environment in its liquidity constraint towards the end of its underwriting cycle. |
| | B) | lowered in expectation of decreasing claims, and the investment policy statement should reflect the possibility of a decreasing claims environment in its liquidity constraint towards the end of its underwriting cycle. |
| | C) | lengthened in expectation of increasing claims, and the investment policy statement should reflect the possibility of an increasing claims environment in its liquidity constraint towards the end of its underwriting cycle. |
| D) | shortened in expectation of increasing claims, and the investment policy statement should reflect the possibility of an increasing claims environment in its liquidity constraint towards the end of its underwriting cycle. |
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Answer and Explanation
Nonlife insurance companies experience a noted underwriting cycle that generates low claim submissions at the beginning of the cycle and high claim submissions at the end of the cycle. The investment policy statement should reflect this changing underwriting cycle reality, which would impact a greater liquidity constraint towards the end of the cycle. Bond portfolio durations should be lowered, if they have not been already, to meet the impending increased claims submissions.
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发表于 2008-9-17 15:12
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