Browsing by Author "Teferi, Debas Yirsaw"

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    Firm Specific Determinants of General Insurance Business Solvency Margin: Evidence from Private Insurance Companies in Ethiopia
    (A.A.U, 2020-01) Teferi, Debas Yirsaw; Habtamu, Berhanu (PhD)
    The objective of this study was to identify and examine firm specific determinants of the general insurance business solvency margins of the private insurance companies in Ethiopia. The target population was defined as all private insurance companies. Hence, the research design was a census survey of private insurance companies in Ethiopia which operated in the insurance industry from 2007/8 to 2016/7. Secondary data were collected from the financial statements of insurance companies and NBE. The data collected were analyzed using standard deviation, mean, correlation and multiple linear regression statistical analysis tools. Multiple regression analysis was carried out in order to see independent variables impact on the solvency margin of insurance companies. This study examined the effects of firm specific factors (firm size, liquidity ratio, operating margin, loss ratio, expense ratio, premium growth, and reinsurance & actuarial issue) on solvency margin. Solvency margin is dependent variable while firm size, liquidity ratio, operating margin, loss ratio, expense ratio, premium growth and reinsurance & actuarial issue are independent variables. The outcome of the study revealed that all studied independent variables were of the predicted sign. That means, firm size, liquidity ratio and operating margin positively related to solvency margin whereas loss ratio, expense ratio, premium growth and reinsurance & actuarial issue affected solvency margin negatively. Firm size, liquidity ratio and reinsurance & actuarial issue affect solvency margin significantly whereas operating margin, premium growth, loss ratio and expense ratio affect solvency margin insignificantly. NBE should develop a clear directive, which can be checked easily by any concerned body, regarding the reinsurance arrangement of the insurance company and set the minimum level insurance premium for each class of business to protect the health of insurance companies and ultimately protect the interest of policyholders. Insurance companies should use reinsurance as a risk management tool, increase their firm size, charge risk commensurate premium for the risk they shoulder and continue maintaining the appropriate level of liquidity ratio. Finally, investors, lenders and policy holders should take into account insurance company’s firm size, reinsurance & actuarial issue (retention level) and liquidity ratio level before taking an investing, financing and buying insurance policy decisions respectively.