Disintermediation Risk — refers to the potential that policyholders may relinquish policies due to
rising interest rates. If interest rates rise too rapidly, then policyholders
may surrender policies faster than expected, potentially resulting in cash flow
obligations that exceed returns on investment assets. Alternatively, during
persistent periods of low interest rates when policy surrender rates tend to
decrease, insurers face the risk that investment returns will decline to the
point that they are unable to service ongoing liabilities. In either scenario,
the sensitivity of investment income and policy obligations to interest rate
changes could have a considerable impact on equity value.