Hi,
I actually think you have the right sort of idea.
Part ii of the question makes reference to the liabilities. I'd therefore be inclined, initially, to talk about the swap with respect to the liabilities.
As you say, a reduction in interest rates would increase the value of the liabilities.
An insurer who wanted to remove the risk of declining rates could enter into a swap arrangement where they received the fixed leg and paid the floating leg. The swap would increase / fall in value when rates fell / increased, and would offset partially, fully or by more the opposite movement in the value of liabilities. It would depend on how well the swap performed as a hedge for the liabilities.
The overall impact on the company (ie after allowing for the other assets held) will depend on how well matched the assets ('swap' plus other assets) and liabilities are.
A swap that has a positive / negative value can be considered an asset / liability.
The swap will have a negative value for the insurer were rates to increase.
Hope that helps.
Last edited: Apr 21, 2020