The Micro Economic Determinants of Insurance Profitability in Ethiopian Insurance Industry—Evidenced From Life and Non-Life Insurance Products

Ambaw Zewdu Muchie, Prof. Sun LiJuan

Abstract


The insurance sector is an integral part of every business, especially the financial market of a country. Insurance companies are essential to economic prosperity for businesses and individuals alike. They are necessary because they compensate for losses and place individuals or businesses in the same position as before the losses. Insurance companies give companies social and economic benefits, such as reducing losses, reducing fear and uncertainty, and creating jobs. This research project examines the following key variables: microeconomic or firm-level variables (Firm size, leverage, liquidity, premium growth, Lose Ratio, market share, the tangibility of assets, age of the company).The researchers used the World Bank Data Center for Macroeconomic Variables. Besides this, the audited financial statements of the National Bank of Ethiopia for microeconomic (Firm-Level) Variables. The core explanatory variables were chosen from influential studies to demonstrate their relationships and effects on profitability. These research objectives used the fixed-effect model were used instead of the random-effect model, following the Hausman test results. Based on the Sample of 17 insurance company In Ethiopia Dated From 2005 to 2020, insurance companies were analyzed using econometric panel data for 16 years. The regression analysis results showed that the firm’s size (insurance firm), leverage ratio, liquidity ratio, market share premium growth, the tangibility of assets, and age of the company were significant. However, liquidity ratio and insurance dependency, insignificantly impact insurance company profitability. Finally, the study recommends that insurance company executives and policymakers in the nation take critical steps by developing policies and strategies to enhance insurers' overall profitability.

Key Words: Insurance company, profitability, return on assets, market share—financial services.


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This work is licensed under a Creative Commons Attribution 4.0 International License.