Determinants of Insurance Companies Profitability in Ethiopia

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Addis Ababa University


Active financial analysis has become one of the important tools that actuaries use to model the underwriting and investment operations of insurance companies. The first step in carrying out the analysis is to investigate the most important factors affecting company profitability. This study seeks to find the determinants of insurance companies’ profitability in Ethiopia. In order to achieve this objective, the study used mixed research approach. Panel data covering eleven-year period from 2004 – 2014 are analyzed for nine insurance companies. Also in-depth interview is conducted with company managers. The findings of the study showed that underwriting risk, technical provision and solvency ratio have statistically significant and negative relationship with insurers’ profitability. However, reinsurance dependence has negative but insignificant relationship with profitability. On the other hand, variables like liquidity, company size and premium growth have a positive and statistically significant relationship with insurers’ profitability. In addition, economic growth rate has significant influence on profitability whereas inflation has insignificant influence on insurers’ profitability. The study provides evidence that underwriting risk, technical provision and liquidity are the most important factors that affect profitability of insurance companies in Ethiopia. So, the study recommends that Ethiopian insurance companies’ managers should give consideration to underwriting risk, technical provision and liquidity to increases their profitability significantly. Keywords: profitability, determinants, insurance



profitability, Determinants, Insurance