Derivative Hedging and Insurer Solvency: Evidence from Taiwan

Yung-Ming Shiu ()
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Yung-Ming Shiu: Department of Business Administration, National Cheng Kung University, 1, University Road, Tainan 701, Taiwan.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2010, vol. 35, issue 3, 469-483

Abstract: Using company-level panel data (2001–2003), this paper empirically examines whether Taiwanese insurers' use of derivatives for hedging purposes is significantly related to their solvency (as measured by solvency ratio). Contrary to the public's perception that firms with derivative programmes have a higher level of solvency if derivatives are employed for hedging purposes, our results indicate that life insurers' derivative hedging generally is not associated with solvency, while non-life insurers using derivative hedging have a lower level of solvency.

Date: 2010
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