An insurance company has $50 million of auto loans with a fixed rate of 14 percent. The loans are financed with $50 million in CDs at a variable rate of LIBOR plus 4 percent. A finance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed-rate guaranteed investment contracts (GICs) costing 10 percent. Which of the following is correct?

I. The insurance company (IC) is exposed to rising interest rates on the liability side of the balance sheet.

II. The IC wishes to convert variable rate liabilities into fixed rate liabilities by swapping the variable rate payments for fixed rate payments.

III. The IC will make variable rate payments and therefore is the seller in the swap.

Group of answer choices

II only

I, II, and III

I only

I and II only

I and III only