Determinants of Insurance Companies’ Profitability in Ethiopia
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Date
2015-05
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Addis Ababa University
Abstract
This study examines internal and external factors affecting insurance companies’
profitability in Ethiopia. Profitability is proxied by ROA, which is a key indicator of
insurance companies’ profitability.
As internal explanatory variables company size,
leverage, liquidity, firm growth, age, volume of capital and tangibility are used,
moreover, as external explanatory variables inflation and GDP are also used to examine
the most determinants of profitability of insurance companies.
Panel data covering the period of 2005 to 2014 are analyzed for nine insurance
companies. The study uses multiple linear regression models, and fixed effect technique
has been applied to find out the most significant variables which affect the insurance
companies’ profitability. As a result, the result shows that from internal factors leverage,
firm growth and tangibility of assets are the most significant determinants of profitability
of insurance companies in Ethiopia, of which, firm growth has positive impact, on the
other hand leverage and tangibility of assets have negative impact on profitability of
insurers. From macroeconomic factors, inflation has a negative and significant impact
on insurers’ profitability
The result also reveals that company size, company age and GDP growth shows positive
but insignificant relationship with insurers’ profitability. And liquidity has negative and
insignificant relationship with insurers’ profitability.
Key words: Determinants; profitability; insurance
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Keywords
Determinants, profitability, Insurance