As part of your role at DEF Insurance Company, you have been tasked with evaluating the investment strategies employed by institutional investors, specifically insurance companies. Insurance companies often face unique challenges due to their obligations to policyholders and regulatory requirements.

One key aspect that affects insurance companies’ investment portfolios is the need to match the duration of their assets to the duration of their liabilities. This is particularly important for life insurance companies, which typically have long-term liabilities.

In this context, your supervisor asks you to identify a potential consequence of failing to adequately manage the duration risk in the investment portfolio of an insurance company.