Effect of Business Risk on Financial Performance of Insurance Business: A Case Study of Ethiopian insurance Corporation
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Date
2024-06-01
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A.Au.
Abstract
This study aims to explore the effects of business risks on the financial performance of
insurance company specifically to evaluate the trend of the financial performance of Ethiopian
Insurance Corporation. Bearing the objective to explore the effect of credit risk, under-writing
risk, liquidity risk, and re-insurance risk, to analyze the effect of macro-economic variables
including inflation, interest, and exchange rate on EIC’s financial performance. To accomplish
these objectives, the study used primary annual data from Ethiopian Insurance Corporation
audited annual financial statement and from National Bank of Ethiopia spanning from 2008/09
to 2022/23 G.C, to analyze the data the study used STATA software, descriptive and inferential
statistics, graphical exploration, and time series model including Vector error correction
model. By doing this, the result indicates that the financial performance of Ethiopian Insurance
Corporation in decreasing patterns after 2020 contrast to the liquidity and credit risk, credit
risk, liquidity risk, under-writing risk, re-insurance risk has not been managed well, credit,
liquidity, underwriting, and re-insurance risks have long run effects on the performance of the
insurance corporation. Furthermore, the results indicate that all the business risks considered
for the study and included macro variables have long run effects on the performance of the
corporation. Based on the above findings the researcher recommend that the corporation
should provide continuous evaluation of claims, creating, recording and putting in to practice
efficient procedures for managing products, and manage the types and attributes of insurance
risks taken on or claims authorized, needs to create risk management plans to lessen the
adverse effects of volatility, revise or induce a robust credit policy to minimize the
corporations’ bad debt, and the board of management and the corporation’s management
should induce risk aware culture across the corporation to manage business risks.