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 fixed rate liabilities into variable rate liabilities by swapping the fixed rate payments for variable rate payments.

III. The IC will make fixed rate payments and therefore is the buyer in the swap.