What liquidity requirement might an insurance company face when interest rates rise?

When interest rates rise, an insurance company may encounter disintermediation as a liquidity requirement. Disintermediation refers to the process where policyholders withdraw their funds or shift their investments from insurance products to other higher-yielding investment options, such as bonds or savings accounts that take advantage of rising interest rates. This can lead to an outflow of policyholder funds as they seek better returns, which impacts the liquidity position of the insurance company.

In such a scenario, the insurance company needs to ensure it has sufficient liquid assets on hand to meet any withdrawal requests from policyholders. The increase in liquidity requirements arises because the higher interest rates create more attractive alternatives, prompting policyholders to move away from the insurance company's products. The company may need to manage its asset-liability matching closely to avoid liquidity strains and ensure it can fulfill its obligations as they are called upon.

While the other options may have implications in different contexts, they do not directly address the immediate liquidity challenges that may arise from rising interest rates in the same way that disintermediation does. For instance, increased premiums relate more to pricing strategies than liquidity. Greater market share pertains to competitive positioning rather than cash flow needs, and enhanced asset valuations generally indicate a stronger portfolio rather than