생명보험회사의 재무적 특성과 파생상품 활용

Abstract

Under the theory of corporate finance, financial derivatives are regarded as one kind of corporate strategy for risk management. Using derivatives, firms can effectively hedge various risk factors, such as credit risk, interest risk, and foreign exchange risk, which are involved in management and investment activities. Since the derivatives does not necessarily entail the fund transfer among the transaction parties, firms can invest regardless of the internal funding capacity and the external financial constraints. Further, based on the leverage effect, derivatives can be considered as efficient investment tools which maximize the future expected return within the limited financial sources. However, if managers abuse the derivatives to fulfill their incentive to speculative investment and extend private benefits, a huge loss can be caused, and by extension, it may bring out the bankruptcy of the firm. Practically, the derivatives is considered as a main source of the global financial crisis. Due to these conflicting views, the understanding of the firms’ motive and incentive for the usage of financial derivatives is essential for either the managers of the firm or the regulatory authorities in order to maximize the benefit and to minimize the cost of it. Financial institutions should have efficient risk management strategies to secure the management sustainability, as they deal with financial market instruments based on the risk-return trade-off. Especially the insurance companies, which receive the fund from insurants in the present and will pay the insured money to them at the specified time in the future, should form a proper business strategy for anticipating and responding to the change of macro-economic risk factors and mitigating the problem of maturity mismatch between assets and liabilities. In Korea, the risk management of insurance companies is increasing in importance, as the trend of low interest rate and high volatility of stock price is continued in Korean capital market. In this regard, to strengthen the global competitiveness of domestic insurance companies, regulatory authorities are focus on the derivatives in setting a new set of financial regulations. However, despite of the practical importance, it is not easy to find the academic empirical researches which analyze the corporate behavior related to the derivative usage of insurance companies in Korea. This paper investigates the effect of financial characteristics of Korean life insurance companies on their derivative usages in risk management. The financial characteristics are capital adequacy, liquidity, profitability, and asset quality. The capital adequacy is closely related to the ability to respond to the financial distress by the exogenous shocks. The liquidity is proxy for the probability of default in short-term period (within one year). These two characteristics are related to the internal capital buffer reacting to the change of risk factors. Thus, firms with low level of these characteristics are expected to have strong incentive to use the financial derivatives to hedge the risk of management activities. In contrast, firms with high level of above characteristics could more actively utilize the derivatives as the means of financial strategies, as they are less affected by the various constraints of using derivatives, such as large uncertainty, complex transaction structure, high counter-party risk, and information acquisition costs. The third characteristic, profitability, refers to the operating efficiency and the intrinsic value of firms. Unprofitable firms could use the derivatives to offset increased sensitivity of risk factors and improve the short-term business performance, but the derivatives could be also employed to maintain the stability of current business conditions. Lastly, the asset quality is related to the financial distress costs of the assets. In case that the default risk of asset portfolios increases, financial derivatives are expected to be served as the means of risk management strategy to hedge the credit risks. Among these expectations of the motive of derivative usage, we empirically confirm which view is empirically supported. In addition, in order to broaden the understanding of the corporate behavior, we separate the derivatives usage based on the purpose, underlying assets, and trading method. Empirically, we confirm that the capital adequacy (RBC ratio, income-expenditure ratio) and profitability (retained earnings to capital ratio) have a positive effect on derivatives usage, while the liquidity and asset quality (suspension of effect termination rate) have a negative effect on it. Additionally, foreign-affiliated firms utilize the financial derivatives more actively than domestic firms. In the mean time, such corporate behaviors are mainly observed when the purpose of derivatives usage is to risk-averse and to avoid foreign exchange risk. Among the derivatives, forward and futures are mainly used. The results in this paper can be used as the baseline data to establish financial policies by presenting the business practices of life insurance companies about the incentive and purpose of derivatives usage.