Using a sample of UK life insurers from 2005 to 2012, we examine the effects of risk management instruments use on insurers' risk. In our work, we use the standard deviation and semi-deviation of returns on equity as the proxies for insurers' total risk and downside risk respectively. Results show that derivatives participants tend to have lower values in these risk measurements. However, insurers that use more derivatives have higher risk. One of the possible explanations is that the excessive amount of derivatives use could make insurers' income flows more volatile and thus increase insurers' risk. On the other hand, the volume of reinsurance usage is related to higher insurers' risk. This result may indicate that insurers use reinsurance to increase their capability to take higher underwriting risk.
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