The Effect of Financial Risk on Performance of Insurance Companies in Ethiopia
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Date
2017-01
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Addis Ababa University
Abstract
The effect of financial risk has been considered to be an important issue on the performance
of insurance companies. This study empirically examines the effect of financial risk on
performance of insurance companies in Ethiopia and interprets the result by relating with
the regulations. The study used balanced panel model in examining the regression model and
collect data from eight insurance companies covering the period of sixteen (16) consecutive
years, 2000-2015. To this end, the study employed a mixed method research approach by
combining documentary analysis and unstructured in-depth interviews. The study used panel
data techniques specifically fixed effect model on the regression analysis and used E-view8
software. The study used one dependent variable return on asset (ROA), six independent
variables that are credit risk, liquidity risk, reinsurance risk, solvency risk, technical
provisions risk and underwriting risk. The regression result show that credit risk, liquidity
risk, solvency risk, underwriting risk and technical provisions risk show negative and
significant effect at 1% and 5% significance level on performance of insurance companies in
Ethiopia, where as reinsurance risk has insignificant effect at 5% significance level on
performance of insurance companies. The research concluded that financial risk has
significant effect on the performance of Ethiopian insurance companies. Hence, the study
recommend in support of each variables for Ethiopian insurance companies to give due
attention on financial risk to enhance their performance significantly.
Key words: - Insurance, Financial risk and Performance
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Keywords
Insurance; financial risk and Performance