Determinants of Insurance Companies Profitability in Ethiopia
No Thumbnail Available
Date
2015-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
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
Description
Keywords
profitability, Determinants, Insurance