Determinants of General Insurance Profitability: Evidence from Private Insurers in Ethiopia

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The objective of this research is to investigate and analyze the factors that mostly an effect on financial performance of general insurance of private insurers in Ethiopia over the period from 2011 to 2020 by using non probability judgment sampling design of private insurers and panel data was used. Quantitative types and explanatory research design was applied. The sample data was drawn from all the seventeen private insurance companies in Ethiopia. The firm specific and macro variables ;Premium Growth, Combined Ratio, Retention Ratio, Assets Turnover, Investment Return, Leverage, and Inflation and Growth rate of GDP were used to analyzed determinants of private insurers of general business profitability in Ethiopia. The researcher selected and specified the model of the study through Ramsey's & Hausman tests, and the result of the two tests showed that there were no omitted variables and random effect model is appropriate and best fit for the research study. The regression result showed that Combine Ratio, Leverage had a negative and significant relationship with ROA of private insurers in Ethiopia at significant level of 5%. On the other hands, Assets Turnover and GDP had a positive and significant relationship with ROA at significant level of 5% and 95% confidence interval. However, premium growth and inflation had insignificant relationship with ROA of private insurers in Ethiopia with negative and positive signs respectively. And investment and Retention were showed a positive but insignificant relationship with ROA. In line with the findings, companies would formulate pricing strategies that charges a premium commensurate to the risk; and policy-wise, insurers association, and all relevant stakeholders would intensely advocate for necessary regulatory measure that would introduce floor premium price practice to the Ethiopian insurance market; Insurance companies would invest and regularly upgrade their insurance management information systems; deploy relevant Enterprise Resources Planning (ERP) and other emerging Insurtech to add value to their services and to significantly cut their operation costs; Further regulatory measures would be put in place to revisit the amendment directives of UPR, and technical reserves computation and of increase capital requirement for establishment of insurance companies so that new entrants can start operations with solid capital base which can in turn help them diversify business of insurers so that more outreach that increase the NEP of insurers. Insurers have to devise a strategy to benefit from the booming Ethiopian economy by innovatively creating demands to gain a fair share from the increasing disposable income. Towards this end, insurers would intensely work on strengthening their research and product development wing to attract customer and private insurers would also increase their total assets



Determinants, Insurance, Private Insurers, Profitability, Returns on Assets