Life Insurance Companies: Investment Considerations

Several years have passed, and the stock market has suffered serious declines. The healthcare industry has come under stricter regulations, and revenues have declined. The Outso pension has become 20% underfunded. Which of the following statements is _most accurate_?

Correct. Outso’s ability to take risk has declined substantially, so the risk in the portfolio should be reduced. The funding gap should be narrowed by making employer contributions.

Incorrect. Improving the expected return to narrow the funding gap may be tempting, but Outso’s ability to take risk has declined substantially, and adding portfolio risk would not be appropriate.

Incorrect. These plan features decrease the time horizon of pensions and require current payouts. This would compound Outso’s problems.

Outso should decrease its portfolio risk

Outso should increase its equity allocation and expected return

Outso should add a feature to allow early retirements or lump sum payouts