Mechanisms for Facing the Effect of Exchange Rate Risk on Insurance Companies by Using Financial Derivatives.

World money markets including foreign exchange markets have witnessed a lot of fluctuations in the last decades which made international companies of insurance face a lot of risks arising out of unexpected fluctuations in exchange rate which affect the actual value of expected cash flow in the future and the activities of insurance companies such as reinsurance. Also, exchange rate may increase inflation rates which highly affect the value of insured assets as well as the amount of cancellation and liqFacing exchange rate risk is highly important especially under fluctuations in the existing economic state and the state's plan to introduce insurance companies shares on the market.These procedures will affect the actual value of shares and their expected revenues because of exchange rate. Consequently, new mechanisms are required to face exchange rate risk This study aims at measuring and analyzing exchange rate risk and its effect on insurance companies and identifying mechanisms to be applied for facing these risks by using new techniques such as futures contract , swap contracts and exchange options.
Results:
1- Exchange rate risk affects insurance companies in different forms: the insured assets, liquidation rate, cancellation, and reinsurance.
2- Using different kinds of options contracts is an effective tool for hedging against exchange rate risk on insurance companies.
 The researcher herein recommends using different kinds of options contracts for hedging against exchange rate risk in insurance companies, enlisting reassessment term in reinsurance agreements and establishing a new department in international companies to be responsible for following up exchange rate risks and setting strategies to curb these risks.