The effect of motor insurance performance on the Profitability insurance companies in Ethiopia
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Date
2020-06
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A.A.U
Abstract
Description
The fundamental purpose of insurance, whether of people or of property, is protection against
possible economic loss, economic loss being simply defined as the unintentional and permanent loss
of something which has monetary value. Moreover, insurance is significant part of modern economy
and it is huge source of employment and also The insurance sector is playing an important role in
Ethiopia’s economic development by promoting financial stability. Howe ve r, the growth of
insurance se ctor in the count ry economy at the infant stage. The major and the largest
contributor for the insurance company’s portfolio is the motor insurance from general insurance
category of non-life Insurance Companies operating in many countries in the world. Motor insurance
business is the largest sector in General Insurance category in all Ethiopian insurance companies. It
constitutes more than 54.5% of the total gross written premium in the industry (Source NBE2018).
However, recently the performance of motor insurance business in Ethiopia has become declined.
Therefore, this study will be intended to investigate the effect of motor performance on profitability of
Ethiopian Insurance Companies. The study was employed explanatory research design to examine the
effects of motor insurance on the profitability companies. As per NBE quarterly bulletin of 2018, there
were 17 insurance companies which operating throughout the country. Therefore, the study based
on the whole population or censuses method .The researcher was used secondary data sources to
accomplish his objective. The secondary source quantitative data was obtained from financial
statements in the preceding six years (2013/2014-2018/2019) from the insurance companies of
concerned bodies or division and collected personally. Those secondary data has been analysed
Motor insurance premium, motor claims cost motor, motor acquisition cost, motor reinsurance cost,
and management efficiency as an independent variable and ROA as a dependent variable by using
descriptive and inferential statics. The key explanatory variables was selected to disclose the
profitability measured by return on asset (ROA) from the prominent previous studies. The study
findings indicate that Motor insurance acquisition cost and motor insurance claim cost (loss ratio)
are negatively related with profitability of the companies and they are significantly influences on the
insurance companies’ profitability. Therefore; the study recommends that insurance companies
should give emphasis to these factors to appropriately address profitability issues
Keywords
Ethiopian insurance companies, Motor insurance and profitability