Firm specific factors that determine insurance companies’ performance in ethiopia
TL;DR: In this paper, the authors investigated the impact of firm level characteristics (size, leverage, tangibility, loss ratio (risk), growth in writing premium, liquidity, leverage and loss ratio) on performance of insurance companies in Ethiopia.
Abstract: The performance of any business firm not only plays the role to improve the market value of that specific firm but also leads towards the growth of the whole sector which ultimately leads towards the overall prosperity of the economy Assessing the determinants of the performance of organizations has gained importance in the corporate finance literature; however, in the context of insurance sector, it has received little attention particularly in Ethiopia Accordingly, this study investigated the impact of firm level characteristics (size, leverage, tangibility, Loss ratio (risk), growth in writing premium, liquidity and age) on performance of insurance companies in Ethiopia Return on total assets (ROA) - a key indicator of insurance company's performance- is used as dependent variable while age of company, size of the company, growth in writing premium, liquidity, leverage and loss ratio are independent variables The sample includes 9 insurance companies over the period 2005-2010 The audited annual reports (Balance sheet and Profit/Loss account) of insurance companies were obtained from National Bank of Ethiopia (NBE) and insurance companies’ annual publication reports The results of regression analysis reveal that insurers’ size, tangibility and leverage are statistically significant and positively related with return on total asset; however, loss ratio (risk) is statistically significant and negatively related with ROA Thus, insurers’ size, Loss ratio (risk), tangibility and leverage are important determinants of performance of insurance companies in Ethiopia But, growth in writing premium, insurers’ age and liquidity have statistically insignificant relationship with ROA
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Dissertation•
01 Jan 2014
TL;DR: In this article, the authors investigated the determinants of financial distress in the insurance companies in Kenya, specifically the study examined profitability, liquidity, efficiency, leverage and firm size, and concluded that the biggest determinant of the financial distress amongst the insurance firms in Kenya is the lack of efficiency and low liquidity.
Abstract: The insurance industry provides an important economic growth base for any country as it safeguards investors‘ assets, creates employment and generally facilitates deepening of credit financing within the economy. Most financial institutions in most economies, require that all assets provided as security be comprehensively insured. In the recent past, nine insurance firms have gone through financial distress to the extent that they have either collapsed or have been placed under statutory management thus threatening the immense contribution of the sector to the economy. This study sought to establish determinants of financial distress in the insurance companies in Kenya, specifically the study examined profitability, liquidity, efficiency, leverage and firm size.The study adopted descriptive research design, which required in depth analyses of data collected from the insurance companies. Stratified random sampling was applied due to the heterogeneity of the population. The target population consisted of 45 insurance companies registered with the Insurance Regulatory Authority as of 2013. Purposive sampling was used to select a sample of 15 companies from the strata. Reliability and validity tests were conducted to determine the strength of the instrument used. Data was analyzed using Statistical Package for Social Sciences (SPSS) version 21. Frequency tables were used to present the findings of the study. Analysis of Variance (ANOVA), Multiple Regression and Correlation Analyses were carried out to test the hypotheses. Various financial ratios as shown in the conceptual frame work were computed, with the aim to determine most significant and reliable ratios for determining financial distress. Cross sectional analysis was used to compare similar financial ratios for the companies studied with the aim to explain the association between the financial ratios and financial distress. Altman‘s Z‘‘ Score model, Solvency Margin and Net Debt were used to measure financial distress exposure of the
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companies studied. The study established that there exists a significant positive relationship between the independent variables; profitability, liquidity, efficiency, leverage and the dependent variable, financial distress of insurance companies in Kenya. Based on the coefficient of determination findings from this study, one may conclude that the biggest determinant of financial distress amongst the insurance companies in Kenya is the lack of efficiency and low liquidity. It was further established that firm size had a significant moderating effect on the independent variables which, thus, led to financial distress in insurance firms. The study concluded that insurance companies in Kenya face financial distress as indicated by Z‘‘ score value obtained which puts the insurance industry at the distressed state. The study recommends that insurance regulators should develop policies on the appropriate levels of profitability, liquidity, efficiency and leverage to be maintained by insurance companies. This will ensure improved operations of the firms as well as make returns to cover loss payments and other obligations when they fall due.
18 citations
TL;DR: In this paper, the authors investigate rating trends and forecast rating transitions for UK insurers and provide insights into the effects of the global financial crisis on financial performance of UK insurance companies, as reflected by rating changes.
Abstract: Financial performance of insurance companies is captured by changes in rating grades. An insurer is susceptible to a rating transition which is a signal depicting current financial conditions. We employ Rating Transition Matrices (RTM) to analyse these transitions. Within this context, credit quality can either improve, remain stable or deteriorate as reflected by a rating upgrade or downgrade. We investigate rating trends and forecast rating transitions for UK insurers. We also provide insights into the effects of the global financial crisis on financial performance of UK insurance companies, as reflected by rating changes. Our analysis shows a significant degree of rating changes, as reflected by rating fluctuations in rating matrices. We conclude that insurers with higher (better) rating grades depict rating stability over the long-run. An unexpected but interested finding shows that insurers with good rating grades are nevertheless susceptible to rating fluctuations. General insurers are more likely to be rated and they demonstrate higher levels of rating grade variations over the period studied. Using comparative rating transition matrices, we find more variations in rating movements in the post-financial crisis period. We also conclude that general insurers reflect less stable rating outlooks compared to life and general insurers.
12 citations
TL;DR: In this article, the authors examined the impact of productivity in addition to the policy of increasing the foreign investors' ownership rate on the performance of businesses which were listed on Vietnam's stock exchange market from 2010 to 2017.
Abstract: The study aims to examine the impact of productivity in addition to the policy of increasing the foreign investors’ ownership rate on the performance of businesses which were listed on Vietnam's stock exchange market from 2010 to 2017. With the database of 3.961 observations, the study employs a statistical method – multiple regression to estimate the relationship between labor productivity, foreign ownership as well as other firm-level characteristics and firm performance. Research findings show that increasing labor productivity and increasing foreign ownership rates help increase firm performance. In addition, except for financial leverage, variables such as liquidity and firm size have positive effects on firm performance measured by Tobin’s Q. These findings have theoretical contributions and practical implications for managers, investors and government in Vietnam. Managers should pay attention to improving labor productivity through employing incentive mechanisms, building a good working environment, investing in technology, etc. in order to enhance the firm performance. Investors could utilize the labor productivity and foreign ownership indicators to select stocks of good companies for investment. For Vietnamese government, relaxing the limit of foreign ownership and accelerating the divesting of State capital in Stateowned enterprises could help increase the investment scale of foreign investors and resulting in positive effects on the firm performance.
12 citations
Cites background from "Firm specific factors that determin..."
...While several studies found that firm age and performance are positively correlated (Autio, 2005; Ito & Fukao, 2006) other articles indicated a significantly negative relationship between them (Mehari & Aemiro, 2013; Salman & Yazdanfar, 2012; Yazdanfar, 2013)....
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Posted Content•
TL;DR: In this article, the authors investigated determinants of financial performance of listed financial sectors in Karachi Stock Exchange from 2008 to 2012 and found that factors such as leverage, liquidity, size, risk, and tangibility have significant effect on financial performance.
Abstract: This study investigated determinants of financial performance of listed financial sectors in Karachi Stock Exchange from 2008 to 2012. The objective of this study was to investigate the factors of financial performance of financial sectors in Pakistan. Descriptive statistics, Correlation matrix, Chow test, Hausman Test for Fixed Effect Model and Random Effect Model and Breusch-Pagan Lagrange multiplier for Random Effect were used in this study. Estimated results revealed that determinants of financial sectors such as leverage, liquidity, size, risk, and tangibility have significant effect on financial performance of financial sectors. It is recommended that financial sectors should consider EVA as an important factor for financial performance. It is suggested that increased number of independent variables will further enhanced the scope of the future studies.
12 citations
Posted Content•
TL;DR: In this paper, the impact of several firm characteristics, such as dimension, capital structure and investment policies on economic performance for a panel of non-life insurance firms operating in the main European markets spanning from 2004 to 2012.
Abstract: The purpose of this paper is to provide new empirical evidence on the determinants of economic performances in the insurance industry. To this end, we test the impact of several firm characteristics, such as dimension, capital structure and investment policies on economic performance for a panel of non-life insurance firms operating in the main European markets spanning from 2004 to 2012. Empirical findings suggest that various factors contribute to the performance measured by return on equity and return on asset and, additionally, the insurance specific characteristics interact with country institutional features in determining profitability. In particular, the profitability of equity appears to be strongly linked to the profitability of assets, which is therefore investigated separately. The three main areas that constitute the core insurance activity (insurance in its narrower sense, financial and reinsurance activities) strongly influence profitability, but reinsurance does not seem to contribute either positively or negatively to performance. Further investigations are needed and welcome, therefore, to better understand the dynamics of performance and shed additional insight on the insurance industry.
12 citations
Cites background from "Firm specific factors that determin..."
...Cummins and Nini (2002), Liebenberg and Sommer (2007), find a positive relation between size and performance; Mehari and Aemiro (2013) find that insurers’ size and leverage are positively related with ROA while loss ratio is negatively related; Malik (2011), and Sambasivam and Ayele (2013), confirm…...
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References
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TL;DR: Jensen and Fama as mentioned in this paper developed a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems and explained the survival of organizational forms in specific activities.
Abstract: Social and economic activities, like religion, entertainment, education, research, and the production of other goods and services, are carried on by different types of organizations, for example, corporations, proprietorships, partnerships, mutuals and nonprofits. There is competition among organizational forms for survival. The form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs. The characteristics of residual claims are important both in distinguishing organizations from one another and in explaining the survival of organizational forms in specific activities. This paper develops a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems. © M. C. Jensen and E. F. Fama, 1983 Michael C. Jensen, Foundations of Organizational Strategy Chapter 6, Harvard University Press, 1998. Journal of Law & Economics, Vol XXVI (June 1983) This document is available on the Social Science Research Network (SSRN) Electronic Library at: http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=94032 AGENCY PROBLEMS AND RESIDUAL CLAIMS
3,594 citations
DOI•
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TL;DR: This paper explored the characteristics, processes, and particularities of three brand communities (those centered on Ford Bronco, Macintosh, and Saab) and found that these brand communities exhibit three traditional markers of community: shared consciousness, rituals and traditions, and a sense of moral responsibility.
Abstract: This article introduces the idea of brand community. A brand community is a specialized, non-geographically bound community, based on a structured set of social relations among admirers of a brand. Grounded in both classic and contemporary sociology and consumer behavior, this article uses ethnographic and computer mediated environment data to explore the characteristics, processes, and particularities of three brand communities (those centered on Ford Bronco, Macintosh, and Saab). These brand communities exhibit three traditional markers of community: shared consciousness, rituals and traditions, and a sense of moral responsibility. The commercial and mass-mediated ethos in which these communities are situated affects their character and structure and gives rise to their particularities. Implications for branding, sociological theories of community, and consumer behavior are offered.
1,782 citations
TL;DR: In this paper, the authors provide empirical tests of the risk differences between two types of ownership structure in the property-liability insurance industry and provide empirical evidence that suggests stock insurers have more risk than mutuals where the risk inherent in future cash flows is proxied by the variance of the loss ratio.
Abstract: This article provides empirical tests of the risk differences between two types of ownership structure in the property-liability insurance industry. Empirical evidence is provided that suggests stock insurers have more risk than mutuals where the risk inherent in future cash flows is proxied by the variance of the loss ratio. Further evidence suggests that stock insurers write relatively more business than do mutuals in lines and states having higher risk. Copyright 1993 by University of Chicago Press.
337 citations
TL;DR: In this paper, the authors examined the impact of an insurer's level of insolvency risk on the prices the insurer obtains for its products in the property-liability insurance market.
Abstract: This article examines the impact of an insurer's level of insolvency risk on the prices the insurer obtains for its products in the property-liability insurance market. The measures of insolvency risk used are those implied by the option pricing model of insurance. The key finding is the existence of a negative relation between insolvency risk and insurance prices. This implies that property-liability insurers are penalized for default risk through lower prices, despite the existence of guaranty funds. Other firm-specific determinants of insurance prices are also identified. The results have significant implications for insurance researchers and regulators.
248 citations
"Firm specific factors that determin..." refers result in this paper
...The finding of this study is congruent with, Gardner and Grace (1993); Sommer (1996); Cummins and Nini (2002); Chen and Wong (2004); Liebenberg and Sommer (2007); Malik (2011) and Ahmed et al. (2011)....
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