In 2008, one of Belgium’s largest insurance companies faced a severe surrender-driven liquidity crisis. The impact of the financial crisis had pushed the market value of the insurer’s asset holdings so low that the company needed to raise € in new capital. In the end, the government stepped in to halt the flow of redemptions.
Both incidents had a relatively minor impact on the wider financial system. However, we cannot take such an outcome for granted for the future. Liquidity risk in the life insurance sector and its interconnection with interest rate risk should, therefore, remain on the radar screen of insurance companies and their regulators.