The duration of policy-holder reserves (PHR) has increased, while the duration of the liabilities has deceased. The investment in short-term bonds would help address this concern by lowering the duration of the PHR to better match that of the liabilities. Regulations may prevent Enterprise from investing in low-grade bonds if the bonds introduce too much default risk into the portfolio. Although investing in low-grade, high-yield bonds could enhance surplus returns, additional surplus growth should not be a primary concern at this time. Reinvestment risk is a concern of life insurance companies but the main concern Enterprise has at the moment regarding a decrease in interest rates and a shorter duration of liabilities compared to their assets is disintermediation and not reinvestment risk |
