Implementing Cash Flow Matching for Insurance Liabilities

ABC Corporation, a large insurance company, has a significant liability stream due to its insurance policies that mature in 5, 10, and 15 years. The company's CFO is seeking a fixed income portfolio management strategy that would allow it to match these liabilities as they occur while considering potential interest rate fluctuations. They are particularly interested in cash flow matching as a strategy to manage the timing of cash outflows to meet their obligations.

Discuss how cash flow matching can be effectively implemented in the context of ABC Corporation’s liabilities. In your answer, address the advantages and disadvantages of this strategy, and provide a detailed example of how the CFO might structure the portfolio to align with the timing and amount of the expected cash outflows from the liabilities.