The Effects of Risk Management on Financial Performance of Ethiopian Insurance Companies
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Date
2017-02
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Addis Ababa University
Abstract
The study focuses on the investigation of the risk management factors that affect the financial
performance of the Ethiopian insurance industry. Managing risks is an important factor
which insurers must attend to achieve their financial performance. From this perspective, risk
management becomes one of the most important practices to be used in insurers in order to get
higher returns. Therefore, this study is attempted to ascertain the relationship between risk
management and financial performance of insurers in Ethiopia. In order to achieve this
objective, the study used explanatory research design, mixed research approach. Panel data
covering eleven-years (2005–2015) are analyzed for nine insurers in Ethiopia. Also in-depth
interview is conducted with the NBE officers. The results of the fixed effect regression model
revealed that technical reserve and liquidity risks have negative & significant impact on ROA
(proxy measure for financial performance) of non-life insurers in Ethiopia, whereas company
size and reinsurance risk have positive & significant effect on ROA. The study led to the
conclusion that technical reserve, size of a company, reinsurance risks and liquidity risk are
the pull factors for the financial performance of insurers. On the basis of these findings, the
study recommends that there is greater need for Ethiopia insurers to manage the risks
particularly technical reserve risk, reinsurance risk and liquidity risk more integrally. The
study also recommends Ethiopian insurers to increase their size by enhancing their assets
base.
Keywords: risk management, financial performance, insurance companies
Description
Keywords
Risk management, Financial performance, Insurance companies