Reinsurance is a transaction insurance firms use to hedge risk. Existing studies have only investigated the demand for reinsurance. Thus, we do not have direct evidence on whether the use of reinsurance creates value. Our study provides this evidence. We find a positive relation between the use...

In this study I investigate for a nonlinear relation between an insurer’s liquidity and its use of reinsurance. I view reinsurance within the context of why publicly traded firms hedge. Within this context, conceptual models of liquidity hedging and related empirical results offer conflicting...