high interest rate environments vs decreased liability durations

hi, does anybody know why “high interest rate environments accopanied by large numbers of policy loans and surrenders have decreased liability durations”? appreciate!

jasonysy Wrote: ------------------------------------------------------- > hi, > > does anybody know why “high interest rate > environments accopanied by large numbers of policy > loans and surrenders have decreased liability > durations”? > > appreciate! Given high interest rate enviroment, policyholder is more likely to cash out their policy or take a loan against their policy and use the money to seek out higest interest rate return on other instruments. When people cash out their policy, it shortens the duration of the liability since policy is one the liability side for insurance company.

ws Wrote: > Given high interest rate enviroment, policyholder > is more likely to cash out their policy or take a > loan against their policy and use the money to > seek out higest interest rate return on other > instruments. When people cash out their policy, > it shortens the duration of the liability since > policy is one the liability side for insurance > company. Could you explain further the part on the shortening of duration? I don’t understand this point. - sticky

Insurance has a bunch life insurance policy on its book, if a good number of them cash out early, it will reduce the average duration of those libailities.