Factors Affecting Profitability of Insurance Companies in Ethiopia
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Date
2025-07-16
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AAU
Abstract
This study investigates the factors affecting the profitability of insurance companies in Ethiopia by employing a mixed research design that integrates both primary and secondary data sources. Primary data were collected through structured questionnaires and unstructured interviews,
while secondary data were obtained from audited financial statements and reports from the National Bank of Ethiopia (NBE). A systematic random sampling technique was applied to select five insurance companies for analysis. Probit regression was used to assess binary outcomes
from the primary data, and panel data regression was applied to evaluate the impact of internal and external variables on profitability. The Probit analysis revealed that educational qualification and technological adoption significantly enhance profitability, indicating the critical role of skilled personnel and digital tools in driving financial performance. However,
property damage insurance related to large infrastructure projects was found to negatively impact profitability. Qualitative findings from interviews highlighted recurring challenges such as strict regulatory environments, limited consumer awareness, delayed premium payments, and
volatile interest rates. Results from the panel data regression further confirmed that company size positively influences profitability, while high leverage and inflation exert a negative effect. Exchange rate fluctuations showed a modest positive impact. In conclusion, the study
underscores the importance of investing in digital technologies, enhancing staff capabilities, and revising underwriting strategies to align with evolving economic and development contexts. It recommends that Ethiopian insurance firms strengthen outreach in rural areas and adopt more adaptive, risk-sensitive business models to improve overall profitability and sustainability.