What Motivates Insurers to Use Derivatives: Evidence from the United Kingdom Life Insurance Industry

Yung-Ming Shiu
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Yung-Ming Shiu: Department of Risk Management and Insurance, National Chengchi University, Taiwan

The Geneva Papers on Risk and Insurance - Issues and Practice, 2011, vol. 36, issue 2, 186-196

Abstract: Using firm-specific variables that proxy for the motivations of life insurers’ decision to participate in derivative transactions, we examine existing theories of corporate hedging behaviour. Our findings support the evidence of previous research that risk management and scale factors explain the use of derivatives. We observe a substitution effect that insurers use on-balance-sheet hedging through structuring their assets and liabilities to reduce price risks.

Date: 2011
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