During the financial crisis from H2, 2007 – Q1, 2009, life insurers experienced a surge in property fund surrenders after experiencing strong inflows in the preceding years. In response most invoked deferral clauses, though there were issues to be addressed in terms of whether systems could cope with deferral (in many cases, system functionality for this contingency was not built); and whether deferral was consistent with TCF (arguably not deferring would not be fair on remaining investors in these funds).

Looking forward, there is a risk that non-property unit-linked funds could experience liquidity strains similar to that experienced by property funds. A particular area of concern would be funds investing in corporate bonds. During the financial crisis, some bonds such as ABSs become effectively illiquid as the market in these collapsed. Furthermore, following the financial crisis, and in response to higher capital requirements, market makers have cut inventories...