1. (25%) (Identification/Evaluation of risks) Lee Life is a U.S.-based life insurance company with the following characteristics:

Lee currently offers 10- and 20-year term life products with face amounts up to $50 million.

It has the second largest share of annual sales volume for the 10- and 20-year U.S. term life insurance market.

Recent mortality experience has been higher than expected.

Lee reinsures all policies that have a face amount in excess of $5 million with a U.S.-based reinsurer.

Lee mostly invests in high-yield U.S. corporate bonds.

Over the past several years, management and staff turnover has been low.

Lee has followed a consistent corporate strategy for several years.

External auditors and regulators have not found any major issues with the companys management or processes.

Lees systems use state-of-the-art technology.

Lee recognized that interest rate risk is very important as high-yield bonds are sensitive to interest rates. Furthermore, the underwriting department created the following list ofnine risk categories for classifying company risks:

Market and economic risk

Foreign exchange risk

Credit risk

Liquidity risk

Systemic risk

Demographic risk

Non-life insurance risk

Operational risk

Strategic risk

Classify each of the nine risk categories as High, Medium, or Low Importance for Lee Life and provide brief justification (i.e., one or two lines) for each of your choices.