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Derivative Hedging and Insurer Solvency: Evidence from Taiwan
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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 programs have a higher level of solvency if derivatives are employed for hedging purposes, our results indicate that insurers’ derivative hedging generally is not associated with solvency. Derivative hedgers have solvency that is similar to nonhedgers.
Title: Derivative Hedging and Insurer Solvency: Evidence from Taiwan
Description:
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 programs have a higher level of solvency if derivatives are employed for hedging purposes, our results indicate that insurers’ derivative hedging generally is not associated with solvency.
Derivative hedgers have solvency that is similar to nonhedgers.
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