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LOMA Report Emphasizes Importance Of Cash-Flow Analysis

By Staff Writer

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NU Online News Service, Nov. 12, 2003, 4:55 p.m. EST – LOMA, Atlanta, has published “Asset-Liability Management Challenges Facing The Life Insurance Industry,” a report by Stephen Forbes that discusses the problems involved with using traditional accounting formats to analyze life insurers’ assets and liabilities.

Ordinary accounting statements usually leave out the possibility that policyholders might withdraw funds early and that debt issuers might exercise options to pay off debts early, Forbes says.

In many cases, ordinary accounting statements also fail to help users project cash flows well enough to detect the threats that debt defaults and big swings in interest rates could pose to solvency, Forbes argues.

Forbes, a senior vice president of research at LOMA, says life executives need to make a point of testing how different interest rate and stock market environments might affect cash flow.