Abstract
Drawing on a sample of Chinese insurance companies, we find that reinsurance significantly enhances liquidity creation by improving operational stability and financing capacity, with this effect being particularly salient for insurers with higher capital adequacy ratios, smaller asset sizes, asset-liability-driven business models, and those located in less developed regions. Moreover, we document an inverted U-shaped relationship between reinsurance and liquidity creation, indicating that the marginal benefits of reinsurance diminish as liquidity creation increases. This study advances the literature on reinsurance and liquidity creation, and provides empirical support for shaping insurers’ expectations and strengthening liquidity risk management practices.
