PART II. CASE STUDY. (10 Marks) Direction: Read and analyze the following cases in paragraph form

The 2007 financial crisis is the breakdown of trust that occurred between banks the year before the 2008 financial crisis. It was caused by the subprime mortgage crisis, which itself was caused by the unregulated use of derivatives. Despite these efforts, the financial crisis still led to the Great decline.

Moreover, the financial crisis in 20072008 has caused losses to life insurance companies issuing variable annuities with guarantees. This is partly due to the failure of variable annuity (VA) issuers to anticipate the large variations in asset prices during the financial crisis times in their pricing framework and setting a higher guaranteed rate. Over the past two decades, guarantees that protect variable annuities balances when their underlying investments perform poorly have become quite accepted.