Reinsurance and technical liabilities as determinants of firm value and profitability: Evidence from Jordanian insurers with the mediating role of excess loss installments

Type of the article: Research ArticleAbstractThis paper examines the influence of reinsurance strategies and insurance liabilities on the performance and market valuation of Jordanian insurance firms. Using panel data from 2010 to 2023 and employing fixed-effects regression and mediation analysis, we test whether Excess Loss Installments (ELI) mediate these relationships. Based on a balanced panel of 16 listed Jordanian insurers over the period 2010–2023, the study applies SPSS, EViews, and SmartPLS to conduct fixed-effects regression and mediation analysis. The findings reveal that a higher reinsurers’ share is significantly associated with lower return on assets (ROA) (β = –0.18, p < 0.05), suggesting that excessive risk cession may erode underwriting profitability. In contrast, insurance contract liabilities have a strong positive impact on ROA (β = 0.29, p < 0.01) and firm value measured by Tobin’s Q (β = 0.32, p < 0.01), indicating that prudent technical reserve accumulation enhances financial strength and investor perception. Correlation analysis further revealed a negative association between reinsurance share and ROA (r = –0.21), while liabilities showed a moderate positive correlation with Tobin’s Q (r = 0.36). Mediation analysis showed that ELI does not play a statistically significant mediating role in the relationship between the main variables. In some models, ELI even had a minor negative indirect effect on firm value.These findings emphasize the importance of optimizing reinsurance structures and liability management. For Jordanian insurers, effective risk transfer must be balanced against profitability goals. Regulators and firm managers should revisit the strategic use of advanced mechanisms like ELI to reduce inefficiencies and strengthen financial outcomes.Acknowledgment(s)This research was funded through the annual funding track by the Deanship of Scientific Research, from the vice presidency for graduate studies and scientific research, King Faisal University, Saudi Arabia [Grant no. KFU253235].