The Determinants of Financial Performance of Insurance Companies in Ethiopia

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In modern economy, Insurance serves as major risks mitigating mechanism. The existence and survival of financially strong Insurance Companies plays crucial role in development of financial and social stability, expansion of trade and production and economic development. For Insurers to be more reliable and financially sound, knowing what factors makes them strong in financial performance is very crucial objective. To achieve this objective, This study specified to examine the determinants of financial performance of insurance companies in Ethiopia as measured by ROA. Explanatory method of research design and quantitative research approach was used to identify the relationship between independent variables leverage, liquidity, management competency index, investment ratio company size market share, inflation and GDP growth and dependent variable ROA. The study used secondary panel data during the period 2014-2018 and includes all insurance companies operates in Ethiopia. Descriptive statistics, correlation analysis and OLS regression analysis were performed to analyze the financial performance of insurance companies. The regression result shows financial performance proxy by ROA is positively and significantly influenced by management competency index, investment ratio, GDP growth and market share at 5% significance level. Company size has negative and significant effect on ROA at 5% significant level. Liquidity and inflation has positive and leverage has negative effect on the performance of the insurance company but the effect not significant at 5% significant level. Finally, the study suggests the mangers of Ethiopian insurance companies should ready themselves for economic changes in country by preparing financial plans which consider the effect of change in GDP, manager when decide to expand the company asset they need to consider its effect on the financial performance and managers should give focus to maximizes their market by providing new product lines, interring in to new market area and making advertisement about their services and facilities.


A Thesis Submitted to the Department of Accounting and Finance, College of Business and Economics, Addis Ababa University In Partial Fulfillment of the Requirements for Degree of Master of Science Accounting and Finance


Financial Performance, Insurance Companies in Ethiopia, Return On Asset