Determinants of Financial Performance of Insurance Companies in Ethiopia

Abstract

The insurance sector plays important role in contributing to economic growth, efficient resource
allocation, reduction of transaction costs, creation of liquidity, facilitation of economic of scale
in investment, and spread of financial losses. Financial performance is the most important
indicator of good financial management as the objective of financial management is to maximize
organization’s earnings measured by profitability. This study investigated the determinants of
financial performance of insurance companies in Ethiopia based on Secondary data obtained
from financial statement of nine insurance companies for eleven years, 2006 to 2016 statements
and balance sheet of insurance companies from NBE. The Method of Data analysis used in this
study is correlation and multiple regression analysis. The findings of the study indicate that
underwriting risk have statistically significant and negative impact on insurers financial
performance and also indicates that there is a positive relationship between firm size and
financial performance whereas firm size has positive impact on insurers’ financial performance.
The study recommended that insurance companies can improve their underwriting performance
through techniques like product selections; minimize claims leakages and conducting
appropriate pre risk survey on the insurable interest before accepting the risk.