The Determinants of Profitability on Insurance Sector: Evidence from Insurance Companies in Ethiopia

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Addis Ababa University


Organizational performance has attracted scholarly attention in corporate finance literature over several decades. However, in the context of insurance sector, it has received a little attention in developing economies. The objective of this study is to determine the relationship between factors affecting insurance profitability (Age of companies, Size of companies, Leverage, Tangibility of assets, Liquidity, Premium Growth, Loss ratio, Reinsurance dependence, Solvency margin and GDP growth rate and financial performance of insurance companies in Ethiopia. In order to carry out the study, secondary data of 9 insurance companies over the period of 2003-2014 was obtained on the financial performance from the annual reports and audited financial statements and secondary data supported by primary data obtained through open-ended questionnaires held with insurance companies chief finance officers .Data collected was analyzed using Eviews 7 econometrics software . Regression analysis was used to analyze the data from secondary source and data from primary source were streamlined presented to support regression result. The study findings indicate that the variables are statistically significance to influencing financial performance of insurance companies in Ethiopia. This implies that loss ratio, size of insurance companies, leverage ratio, and solvency margin has significant impact at one percent significance level on profitability of insurance companies operating in Ethiopia and the primary source data also supports that the above variable has an impact on profitability of insurance companies. Based on the findings, the study recommends that insurers must work towards improving their solvency margin, underwriting risk, and increase their size of asset, financing decision and improving management and employee’s competency. Further studies should be undertaken to analyze the different sectors in the economy to determine any significant differences in the relationship between firm characteristics and financial performance in the insurance sectors by incorporating other independent variable. Key Terms: Financial Performance, Profitability, Insurance Companies in Ethiopia, Return On Asset (ROA)



Financial Performance, Profitability, Insurance companies in ethiopia, Return on asset (ROA)