Determinants of Insurance Companies’ Profitability in Ethiopia

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Date

2014-11

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Addis Ababa University

Abstract

This paper examined the effects of firm specific factors (size of company, leverage ratio, liquidity ratio, loss ratio/ risk, tangibility of assets, growth and managerial efficiency) and macroeconomic factors (economic growth and inflation) on profitability peroxide by ROA. The sample in this study includes ten insurance companies for six years (2008-2013). Secondary data obtained from the financial statements (Balance sheet and Profit/Loss account) of insurance companies, and financial publications of MOFED are analyzed. From the regression result; size, leverage, tangibility of asset, loss ratio/ risk, firm growth and managerial efficiency are identified as significant determinants of profitability hence firm size, tangibility of asset, firm growth and, managerial efficiency are positively related. In contrast, leverage and loss ratio/ risk are negatively but significantly related with profitability. Liquidity, inflation, and economic growth are not significant determinants of profitability. Accordingly the insurance managers and policy makers should give high concern to firm-specific determinants of profitability. Moreover, it is better to use longer period of observation to adequately investigate the effects of macroeconomic variables on profitability of insurance companies and further research should investigate based on insurance type (life and non life) that would provide better insight for determinants of insurance company profitability

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Keywords

Determinants of Insurance companies, Profitability in ethiopia

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