However, it is important to add that the balance sheet of an insurance company can look quite different from the traditional picture I have just sketched. For example, a life insurer may offer investment and retirement products with account values that can be withdrawn at the discretion of policyholders, sometimes with little or no surrender penalty.
The option to surrender creates the potential for increased claims that could strain the liquidity of the firm. Relatedly, the extensive involvement of an insurance firm in securities lending, repo, over-the-counter derivatives, and other capital markets activities can create a balance sheet with much tighter connections to the rest of the financial system and greater liquidity risk in times of financial market stress.