The Determinants of Financial Derivatives Use in the UK life Insurance Industry

This paper examines the determinants of financial derivatives use in the United Kingdom (UK) life insurance industry. We estimate a probit regression model and a Heckman two-stage sample selection regression model using a sample of 88 UK 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 to use derivatives than proprietary firms. The positive relation with leverage and the negative relation with reinsurance support the hypothesis that UK life insurers use derivatives to offset risk, rather than as a speculative means of income generation

The Determinants of Credit Ratings in the United Kingdom Insurance Industry

Executive Summary The Determinants of Credit Ratings in the United Kingdom Insurance Industry Academic researchers have devoted a considerable amount of attention to the activities of credit rating agencies over the past 20 years, focusing in particular on the agencies’ potential role in overseeing corporate financial strength and promoting the efficient operation of financial markets. Examinations of credit rating practices has recently extended to the insurance industry, where the complex technical nature of market transactions leads to policyholders, investors and others facing particularly acute information asymmetries at the point-of-sale. Published credit ratings are therefore seen as helping to alleviate imperfections in insurance markets by providing a third party opinion on the adequacy of an insurer’s financial health and the likelihood of it meeting obligations to policyholders and others in the future. Although the United Kingdom (UK) insurance market is now one of the five largest in the world, relatively little is known about the practices of the major firms and policy-makers which influence its operations. In particular, whilst the determinants of rating agencies’ assessments of United States (US) insurers is well documented, published studies have yet to provide comprehensive evidence about insurance company ratings in the UK. This study attempts to fill this gap by examining the ratings awarded by two of the world’s leading agencies – A.M. Best and Standard and Poor (S&P) – and establishing the extent to which organizational variables can help predict: (i) insurance firms’ decision to be rated; and (ii) the assigned ratings themselves. Our sample of UK data comprises ratings made by A.M. Best and S&P over the period 1993-1997 for both life and property-liability insurers. The panel data we use is ordinal in nature and is therefore analysed using an ordered probit model. However, because neither A.M. Best or S&P rate the full population of UK insurance firms our data set is potentially subject to selfselection bias and we therefore extend the model to correct for such problems. In particular, the paper examines the effect of eight firm-specific variables (namely, capital adequacy, profitability, liquidity, growth, size, mutual/stockowner status, reinsurance level, and short/long-term nature of business) on the ratings awarded by the two agencies, as well as on insurance firms’ decisions to volunteer for the ratings in the first place. In general terms, our evidence concurs with earlier US findings, and suggests that although the decision to be rated by either of the agencies is largely influenced by a common set of factors, the determinants of the ratings themselves appear to differ. Specifically, our first main finding is that insurers’ decisions to be rated by either A.M. Best or S&P is positively related to surplus growth, profitability and leverage. Second, while we find that A.M. Best’s ratings are positively linked to profitability and liquidity, as well as being generally higher for mutual insurers, the findings for S&P differ substantially. Although liquidity again exerted a positive influence on assigned ratings, the only other statistically significant variable was financial leverage, which had a negative sign. We believe that the results of our research are of potential importance for companies operating in insurance markets as well as for policy-makers, brokers and others. For example, the evidence that mutual insurers are generally assigned higher ratings than stock insurers suggests that certain publicly-traded insurers, in particular new entrants, might not possess sound financial strength and may require closer regulatory scrutiny than other, more established, insurance firms. In addition, the finding that liquidity has a significantly positive effect on ratings assigned by two of the world’s leading credit agencies should provide a measure of confidence about the robustness of the ratings to industry regulators, policyholders and investors in the UK. This could imply that external ratings might eventually play a role in substituting for costly industry regulation. The study concludes that although the factors influencing the decision to be rated by A.M. Best or S&P are broadly the same, a degree of variability exists in the variables which influence the actual ratings themselves. Insurance company managers should be aware of this when contemplating whether to seek an independent rating and which agency to choose for the assessment. We therefore believe that this study fills an important gap in the literature about key players in the important UK insurance market and provides a basis for the conduct of future research

IMPACT OF PREEMERGENT HERBICIDES, MOWING HEIGHT, AND FERTILIZATION ON CENTIPEDEGRASS ROOT ARCHITECTURE AND DROUGHT TOLERANCE

Mowing, N fertilization and the application of preemergence herbicides (PRE) are cultural practices performed on centipedegrass to improve overall turf quality. It is posited that increasing mowing height and application of fertilizers can lead to greater turfgrass rooting and increase drought survival; while the application of PRE is reported to potentially have negative impacts on rooting. At two locations in Louisiana, studies examining the effects of these practices on centipedegrass rooting and drought tolerance were conducted. In the first 11-week study conducted, centipedegrass was treated with dithiopyr, pendimethalin, prodiamine, simazine, or indaziflam at the manufacturers’ labeled rates. During the 11-wk experiments, roots were harvested at upper and lower contiguous soil depths of 7.5 cm and analyzed for root length (RL), surface area (SA), average diameter (AD), length volume-1 (LPV), and root mass (RM). Across all treatments and soil depths, PRE did not alter rooting compared to controls with the exception of AD for simazine-treated centipedegrass at 0.397 mm compared to 0.338 and 0.341mm for prodiamine and indaziflam, respectively. At 11 wks., cores were harvested and subjected to a 28 d dry-down period. Centipedegrass maintained acceptable leaf color for 13 days before complete leaf firing occurred at 20 days. A single application of PRE to mature centipedegrass during early spring did not alter rooting or drought tolerance compared to controls. In the second study, centipedegrass was maintained at one of four mowing heights (2.5, 5, 7.5 and 10 cm) and subjected to fertilization or no fertilization. During the 29-wk experiments, roots were harvested and analyzed as above and subjected to a mid-summer 36-day drought simulation. All centipedegrass in these experiments exhibited a pattern of increased leaf firing over the drought simulation with unfertilized centipedegrass maintaining acceptable leaf color (≥5) for 19 days at 5.9 compared to 4.8 when fertilized. Rooting parameter measurements across all mowing heights and soil depths initially declined from spring into summer then increased in fall. This, in conjunction with the lack of changes in rooting from alterations in cultural practices, indicates soil temperature may be a significant factor in centipedegrass rooting

A Stakeholder Analysis of Corporate Donations: United Kingdom Evidence

Drawing a framework from stakeholder theory, this study uses 1994 data drawn from 100 United Kingdom listed companies to test empirically whether the level of discretionary donations made by companies to charitable, social and political causes is related to four company-specific factors, namely leverage, company size, profitability and ownership structure. Consistent with our hypotheses, the results indicate that the decision to contribute funds to charities and other bodies is positively related to company size and profitability and negatively related to leverage. However, the study provides no support for the view that there is a link between discretionary donations and a company’s ownership structure

LES of an Inclined Jet into a Supersonic Turbulent Crossflow

This short article describes flow parameters, numerical method, and animations of the fluid dynamics video "LES of an Inclined Jet into a Supersonic Turbulent Crossflow" (http://ecommons.library.cornell.edu/bitstream/1813/14073/3/GFM-2009.mpg [high-resolution] and http://ecommons.library.cornell.edu/bitstream/1813/14073/2/GFM-2009-web.m1v [low-resolution] video). We performed large-eddy simulation with the sub-grid scale (LES-SGS) stretched-vortex model of momentum and scalar transport to study the gas-dynamics interactions of a helium inclined round jet into a supersonic ($M=3.6$) turbulent (\Reth$=13\times10^3$) air flow over a flat surface. The video shows the temporal development of Mach-number and magnitude of density-gradient in the mid-span plane, and isosurface of helium mass-fraction and \lam_2 (vortical structures). The identified vortical structures are sheets, tilted tubes, and discontinuous rings. The vortical structures are shown to be well correlated in space and time with helium mass-fraction isosurface ($Y_{\rm He}=0.25$).Comment: 7 pages, 1 figure, 1 table, article describing fluid dynamics video submitted to Gallery of Fluid Motion, APS-DFD 200

Do p+p Collisions Flow at RHIC? Understanding One-Particle Distributions, Multiplicity Evolution, and Conservation Laws

Collective, explosive flow in central heavy ion collisions manifests itself in the mass dependence of $p_T$ distributions and femtoscopic length scales, measured in the soft sector ($p_T\lesssim 1$ GeV/c). Measured $p_T$ distributions from proton-proton collisions differ significantly from those from heavy ion collisions. This has been taken as evidence that p+p collisions generate little collective flow, a conclusion in line with naive expectations. We point out possible hazards of ignoring phase-space restrictions due to conservation laws when comparing high- and low-multiplicity final states. Already in two-particle correlation functions, we see clear signals of such phase-space restrictions in low-multiplicity collisions at RHIC. We discuss how these same effects, then, {\it must} appear in the single particle spectra. We argue that the effects of energy and momentum conservation actually dominate the observed systematics, and that $p+p$ collisions may be much more similar to heavy ion collisions than generally thought.Comment: 4 pages, 3 figures - To appear in the conference proceedings for Quark Matter 2009, March 30 - April 4, Knoxville, Tennesse