The Effect of Risk Management on Financial Performance of Insurance Companies in Ethiopia

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Addis Ababa University


The study was conducted to examine the effect of risk management on financial performance of insurance companies in Ethiopia; the objective of the study was to investigate the effect of risk management on financial performance from perspectives of financial, operational and enterprise management risk. The study was conducted using primary and secondary data; primary data was collected through interview; while secondary data was collected from financial statements of the insurance companies. In order to achieve the objective of the study, the study used explanatory research design, mixed research approach with a Panel data covering nine-years (2009–2017) are analyzed for ten insurers in Ethiopia. The reason for not including periods after 2017 is incompleteness of the available data at the National bank combined report at the time of data collection. Also in-depth interview was conducted with the top management of insurance companies and other national bank of Ethiopia insurance supervision officers. The finding of the study reveals that; financial performance of an insurance companies can be affected by financial, operational and enterprise management risk; the result of random effect regression model shows that; financial risk; which is measured by liquidity risk have a positive and statically significant effect on financial performance at 1 percent significance level. Cost to income ratio, claim settlement ratio and asset utilization ratio which are proxy for operational risk of insurance companies have negative, negative and positive impact on financial performance of the insurers respectively and statically significant at 1 percent, 5 percent and 1 percent significance level respectively. Firm size which is measure for enterprise risk management have positive effect on financial performance of insurance companies and statically significant at 5 percent significance level. The study recommends Ethiopian insurance companies to give their attention for those variables significantly affect the profit of the companies.


A thesis submitted to the school of graduate studies of Addis Ababa university college of business and economics in partial fulfillment of the requirement for the degree of master of science in accounting and finance


Financial performance, Insurance companies, Risk management