Determinants of Corporate Hedging Behavior: Evidence from the Life Insurance Industry

Colquitt, L. Lee; Hoyt, Robert

doi:10.2307/253890

Cited by 111 publications

(124 citation statements)

References 26 publications

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“…From the table, LnAsset, FADRatio, DepRatio, Liquidity, and RBC are turned out to affect the derivatives use of life insurance companies. Precedent studies such as Cho (2001), Mian (1996), Cloquitt andHoyt (1997) show that size of asset for life insurance company influences the derivatives use. The result that Foreign assets and liabilities affect significantly derivatives use for life insurance companies is consistent with the results of many studies including Cho (2001), Lee (2003), Berkman and Bradbury (1996).…”

Section: Basic Statisticmentioning

confidence: 99%

Factors Affecting Derivatives Use for Life Insurance Companies

Hee¹,

Song²

2017

IJEF

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The aim of this article is to investigate what factors affect derivatives use for life insurance companies in Korea. For life insurance companies in Korea, there are some problems to solve. First one is to meet IFRS standard which emphasizes solvency. Second one is to overcome problems from macroeconomic including low economic growth and low interest rate, fluctuating foreign currency exchange rate, and problems from population composition change and longer longevity. One of the possible ways to control the risks that life insurance companies face is using derivatives. Traditionally life insurance companies use reinsurance to hedge their inherent risks. However, hedging by using derivatives provides some different merits from those by reinsurance, such as, effects of controlling risks from macroeconomic change, in some cases less costs to control risks, etc. So using derivatives to control risks for life insurance companies is not only for sustainable management but for growth and becoming more competitive. The study results show that asset size, foreign assets and liabilities, proportion of deposit insurance, liquidity, RBC are significant factors affecting derivatives use.

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Section: Basic Statisticmentioning

confidence: 99%

Factors Affecting Derivatives Use for Life Insurance Companies

Hee¹,

Song²

2017

IJEF

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“…34 See for example Beasley (1996) and Summers and Sweeney (1998). 35 Colquitt and Hoyt (1997). 36 Santomero and Babbel (1997).…”

Section: Datamentioning

confidence: 99%

Reputational Signals and Capital Acquisition When Insurance Companies Go Public

Carter

Power

2012

Geneva Pap Risk Insur Issues Pract

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We analyse reputational signals and decisions surrounding capital acquisition by examining 76 insurance firms going public from 1996 to 2006. We first explore the relationship between proxies for insurance firm reputation and initial public offering (IPO) underwriter reputation. In general, we find that more reputable underwriters market IPOs of more reputable insurers-insurers that are less risky, more likely to be life insurers and that have higher franchise value. These results suggest that underwriter and insurer reputations are aligned and send consistent signals. Second, we show that the market requires a higher return from riskier/less reputable insurers when they go public. When we compare the performance of our insurance company sample to a matched sample of non-insurance firms, we find that the greater reputational transparency of insurers allows the market to do a better job of determining future performance. Last, we conclude by showing empirically that franchise value and the reputational posture of the insurance firms are positively related. These results contribute to the growing body of knowledge on reputational risk management and should enhance capital acquisition strategies of insurance company managers.

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“…14 Nance et al (1993). 15 Literature suggests that insurers with higher leverage have higher probability of insolvency (Carson and Hoyt, 1995), and therefore are more likely to use derivatives to lower bankruptcy costs by reducing the probability of insolvency (Colquitt and Hoyt, 1997;Hardwick and Adams, 1999). 16 It can be argued that leverage and solvency are closely related and may be difficult to disentangle.…”

Section: Reduction In Expected Tax Paymentsmentioning

confidence: 99%

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

Shiu

2011

Geneva Pap Risk Insur Issues Pract

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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.

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Determinants of Corporate Hedging Behavior: Evidence from the Life Insurance Industry

Cited by 111 publications

References 26 publications

Factors Affecting Derivatives Use for Life Insurance Companies

Factors Affecting Derivatives Use for Life Insurance Companies

Reputational Signals and Capital Acquisition When Insurance Companies Go Public

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

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