An empirical investigation on derivatives usage: evidence from the United Kingdom general insurance industry

Abstract

This article reports the holdings of derivatives contracts in the UK general insurance industry and investigates the relationship between the usage and insurer organizational characteristics with panel data for the period 1994 to 2002. Overall it seems that the use of derivatives instruments in this industry is limited and shows a downward trend. The empirical results indicate, among other things, that a general insurer`s size, liquidity, interest rate risk exposure, line of business concentration and organizational form are important factors associated with the decision to employ derivatives.