The Determinants of Financial Derivatives Use in the United Kingdom Life Insurance Industry |
| |
Authors: | Philip Hardwick & Mike Adams |
| |
Institution: | Professor of Financial Services, University of Bournemouth,;Senior Lecturer in Accounting, School of Management, University of Bath |
| |
Abstract: | This paper examines the determinants of financial derivatives use in the United Kingdom life insurance industry. We estimate a probit regression model and a Heckman two-stage sample selection regression model using a sample of eighty-eight U.K. life insurers in 1995. Our results indicate that the propensity to use derivative instruments is positively related to a firm's size, leverage and international links, and negatively related to the extent of reinsurance. We also find that mutual life insurance firms have a greater propensity than stock firms to use derivatives. The positive relation with leverage and the negative relation with reinsurance support the hypothesis that U.K. life insurers use derivatives to offset risk, rather than as a speculative means of income generation. Firm size and organizational form are the main influences on the extent of financial derivatives use. |
| |
Keywords: | Derivatives Financial Life insurance |
|
|