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Journal ArticleDOI

Firm specific factors that determine insurance companies’ performance in ethiopia

30 Apr 2013-European Scientific Journal, ESJ (European Scientific Institute)-Vol. 9, Iss: 10
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
Citations
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Journal ArticleDOI
TL;DR: In this paper, the authors analyze the determinants of the financial performance in the Romanian insurance market during the period 2008-2012, by applying specific panel data techniques, according to the final results achieved by applying certain panel-based techniques, the determinant of financial performance are the financial leverage in insurance, company size, growth of gross written premiums, underwriting risk, risk retention ratio and solvency margin.
Abstract: The financial analysis of a company is an important tool used by actuaries in the process of decision- making on underwriting and investment activities of the insurance company. The financial performance of insurance companies is also relevant within the macroeconomic context since the insurance industry is one of the financial system’ components, fostering economic growth and stability. The financial performance of insurance companies can be analyzed at micro and macroeconomic level, being determined both by internal factors represented by specific characteristics of the company, and external factors regarding connected institutions and macroeconomic environment. This study attempts to analyze the determinants of the financial performance in the Romanian insurance market during the period 2008–2012. According to the final results achieved by applying specific panel data techniques, the determinants of the financial performance in the Romanian insurance market are the financial leverage in insurance, company size, growth of gross written premiums, underwriting risk, risk retention ratio and solvency margin.

107 citations


Cites background from "Firm specific factors that determin..."

  • ...In this context, Mehari and Aemiro (2013) assess the impact of the Ethiopian insurance companies’ characteristics on their performance....

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Journal ArticleDOI
Emine Öner Kaya1
TL;DR: In this article, the authors investigated the firm-specific factors affecting the profitability of non-life insurance companies operating in Turkey and found that the most important factors are the size of a company, age of the company, loss ratio, current ratio, and premium growth rate.
Abstract: This study investigates the firm-specific factors affecting the profitability of non-life insurance companies operating in Turkey. For this purpose, data of 24 non-life insurance companies operating in Turkey from the period 2006–2013 were brought together to obtain 192 observed panel data sets. In this study, profitability is measured by two different variables: technical profitability ratio and sales profitability ratio. According to the empirical results, the firm-specific factors affecting the profitability of Turkish non-life insurance companies are the size of the company, age of the company, loss ratio, current ratio, and premium growth rate.

74 citations

Journal ArticleDOI
07 Nov 2018
TL;DR: In this paper, the authors explored the interrelationship between macroeconomic factors, firm characteristics and financial performance of quoted manufacturing firms in Nigeria and found no significant effect for interest rate, inflation rate, exchange rate and gross domestic product (GDP) growth rate, while the firm characteristics were size, leverage and liquidity.
Abstract: Purpose The purpose of this paper is to explore the interrelationship between macroeconomic factors, firm characteristics and financial performance of quoted manufacturing firms in Nigeria. Specifically, the study investigates the effect of interest rate, inflation rate, exchange rate and the gross domestic product (GDP) growth rate, while the firm characteristics were size, leverage and liquidity. The dependent variable financial performance is measured as return on assets (ROA). Design/methodology/approach The study used the ex post facto research design. The population comprised all quoted manufacturing firms on the Nigerian Stock Exchange. The sample was restricted to companies in the consumer goods sector, selected using non-probability sampling method. The study used multiple linear regression as the method of validating the hypotheses. Findings The study finds no significant effect for interest rate and exchange rate, but a significant effect for inflation rate and GDP growth rate on ROA. Second, the firm characteristics showed that firm size, leverage and liquidity were significant. Practical implications The study has implications for regulators and policy makers in formulating policy decisions. In addition, managers may better understand the interplay between macroeconomic factors, firm characteristics and profitability of firms. Originality/value Few studies have addressed the interplay of macroeconomic factors and firm characteristics in determining the profitability of manufacturing firms in the country and developing countries in general.

71 citations


Cites background from "Firm specific factors that determin..."

  • ...Sambasivam and Ayele (2013) in Ethiopia, which proxied profitability as ROA, found that leverage and liquidity were significant and negative....

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  • ...On a sample of insurance companies in Ethiopia, Mehari and Aemiro (2013) revealed that size and leverage were positive and statistically significant; however, liquidity was statistically non-significant....

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  • ...Mehari and Aemiro (2013) examined firm-specific factors that determine performance in Ethiopia....

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Journal ArticleDOI
TL;DR: In this article, an exploratory study investigating firm-specific internal factors that influence the profitability performance of selected life insurance firms in eight Asian countries (China, Hong Kong, Taiwan, Singapore, Japan, South Korea, Thailand and Malaysia) from 2008-2014.
Abstract: This study is an exploratory study investigating firm-specific internal factors that influence the profitability performance of selected life insurance firms in eight Asian countries (China, Hong Kong, Taiwan, Singapore, Japan, South Korea, Thailand and Malaysia) from 2008-2014. This paper aims to focus on internal rather than external factors based on the resource-based view suggesting that the internal resources of a firm are key to gaining competitive advantage.,The authors used panel data estimation model to test our six hypotheses on these eight selected countries for the period between 2008 and 2014.,A random effect model reveals that size, volume of capital and underwriting risk are significantly related to the profitability of Asian life insurance firm, measured as return on assets. Premium growth, asset tangibility and liquidity are insignificant predictors of the profitability performance of these life insurance firms.,Three implications of this study are that life insurance firms need to proactively tap new business opportunities by attracting younger generation customers via e-marketing technologies; secure larger capital base to finance their market expansion strategies; and focus on intangible resources such as goodwill, brand equity and reputation.,This study contributes to the literature by conducting an exploratory regional-based panel study of Asian life insurance firms to find common factors that contribute towards profitability. The study is conducted on a collective sample of Asian life insurance firms based on the premise that the firms included in the sample engage in cross-border activities and share the same international financial reporting standards. These commonalities allow us to treat the firms jointly in a somewhat similar Asian macroeconomic environment.

31 citations

Dissertation
01 Jan 2013
TL;DR: In this paper, the authors conducted a study to determine the relationship between firm characteristics (size, div r ific tic n, k ragl:, liquidity, age, premium growth and claim experience) and financial performance of life insurance companies in Kenya.
Abstract: Organizational performance has attracted scholarly attention in corporate finance literature over several decades. However, in the conte ·t of in urance sector, it has received a little attention in developing economics. The objcctiv f thi tudy i to determine the r lationship between firm characteristics (size, div r ific tic n, k ragl.:, liquidity, age, premium growth and claim experience) and financial p 'rl( rman · r life insurance companies in Kenya. In order to carry out the study, sccondar dat ·t )r 17 I if< insurance companies over the period of 2008-2012 was obtained on the Iinam: hi p ·rf rman · from the annual reports and audited financial statements. Data collected was anal ' 7 ·d u ·1ng P ( tatistical Package for Social Scientists). Regression analysis was used to anal) z the data. The study iinding , indicate that the variables are statistically significance to influencing financial performance of life in urance companies as indicated by the positive and strong Pearson correlation coefficients. This implies that premium growth is relied upon to make conclusions about th financial performance of life insurance companies' as shown by its strong and positive correlation coefficients. Based on the findings, the study recommends that insurers must work towards improving the premiums earned to increase profits. Further studies should be undertaken to analyze the different sectors in the economy to determine any significant differences in the relationship between firm characteristics and financial performance in the different sectors incorporating more independent variables.

31 citations

References
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Journal ArticleDOI
TL;DR: In this article, the authors investigated the relationship between product diversification and firm performance in the U.S. property-liability insurance industry using data over the 1994 through 2002 time period.
Abstract: This article investigates the relationship between product diversification and firm performance in the U.S. property-liability insurance industry using data over the 1994 through 2002 time period. Using various measures of product diversification and firm performance, we find that the extent of product diversification shares a complex and nonlinear relationship with firm performance. Our findings suggest that performance benefits associ ated with product diversification are contingent upon an insurer's degree of geographic diversification. Robustness tests using subsamples and market returns for public firms show consistent results.

129 citations

Journal ArticleDOI
TL;DR: In this article, a flexible stochastic cost frontier is estimated for the UK life insurance industry using a sample of 54 companies over five years, and the estimated frontier is then used to compute measures of economic, scale, and total inefficiency for different company size groups.
Abstract: To identify likely gainers and losers and to examine the effects of increasing competition on the structure of the UK life insurance industry, the cost inefficiency of UK life insurance companies is analysed. A flexible stochastic cost frontier is estimated for the industry using a sample of 54 companies over five years. The estimated frontier is then used to compute measures of ‘economic’, ‘scale’ and ‘total’ inefficiency for different company size groups. The results show that, on average, larger life insurance companies are less inefficient than smaller companies, but there are substantial variations in the degree of inefficiency within size groups.

124 citations


"Firm specific factors that determin..." refers result in this paper

  • ...This finding was similar to that of Malik (2011) and Ahmed et al. (2011) ....

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  • ...This finding was similar to that of Malik (2011) and Ahmed et al. (2011) .Thus based on this research finding age of insurers’ is not considered as a powerful explanatory variable to determine the performance of insurance companies in Ethiopia. However, the variable size is positively related to ROA and statistically significant at the 5 % level of significance. This reveals that performance of large size insurance companies is better than small size companies. Large insurers are likely to perform better than small insurers because they can achieve operating cost efficiencies through increasing output and economizing on the unit cost of innovations in products and process development (Hardwick, 1997). Large corporate size also enables insurers to effectively diversify their assumed risks and respond more quickly to changes in market conditions (Wyn, 1998). 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....

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  • ...This finding was similar to that of Malik (2011) and Ahmed et al....

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Book
01 Jan 1984

111 citations

Journal ArticleDOI
TL;DR: In this article, the authors employed a dynamic statistical methodology called event history analysis to examine property-liability and life insurer insolvencies in the U.S. and found that the explanatory variables significantly affect the hazard rate.
Abstract: Introduction Insolvencies in the U.S. insurance industry have recently received increased attention. Both the number and magnitude of insolvencies have been significantly increasing relative to historical trends. In the 1980s, 258 insolvencies of property-liability insurers occurred, compared to 108 insolvencies during the 1970s. While the insolvencies of the 1970s occurred almost exclusively in small insurers, the more recent cases involved large property-liability insurers such as the Mission Insurance Group, Integrity Insurance Company, and Transit Casualty Company. Traditionally, life insurers have experienced considerably fewer insolvencies than property-liability insurers. From 1975 through 1990, 140 life insurer insolvencies have occurred, over half of which occurred from 1987 to 1990; in 1989 alone, 27 insurers became insolvent. The two major statistical models that have been used for insolvency studies are multivariate discriminant analysis and binary response regression models. Both of these methods use a sample of solvent and insolvent firms studied over a short time interval. One limitation of this type of analysis is that the output is a classification of companies into a set of distressed companies and the complimentary set. In contrast to classification methodologies, the principal purpose of this study is to employ a dynamic statistical methodology to the financial data of property-liability and life insurer insolvencies. Various potential factors associated with insolvencies are empirically modeled for a sample of insolvent and solvent insurers from 1984 through 1990 for property-liability insurers, and from 1987 through 1990 for life insurers. Because a superb review of earlier work on the use of statistical methods to identify financial distress in the insurance industry has been provided by BarNiv and McDonald (1992), we forego a review of the literature. Methodology Event History Analysis This study employs a dynamic statistical methodology called event history analysis to examine property-liability and life insurer insolvencies. The event history approach is not unique to the social sciences; similar methods have developed independently in such diverse areas as actuarial science, biostatistics, demography, and engineering (Amburgey, 1986; Barnett, 1990; Carroll, 1983; Freeman, Carroll, and Hannan, 1983; Stinchcombe, 1965; Tuma, 1979; and Yamaguchi, 1991). Event history analysis explicitly considers the dynamics of the factors influencing the probability of insolvency over an interval of time. In case of major fluctuations, the snapshot methodology of classification analysis, which considers a shorter interval, may provide an incomplete picture of the situation. Event history analysis explicitly incorporates information on prior history for improving the explanatory capacity of the model. Finally, since a static model can be viewed as a special case of a dynamic model, dynamic models have more implications, thereby expanding the ability to test hypotheses. This study focuses on the events of insurer insolvencies and factors associated with these insolvencies. Because events can be defined in terms of change over time, an effective way to study events and their causes is to collect event history data that record the exact time and sequence of particular kinds of changes. Thus, the problem is to specify how the occurrence of the event (in this case, insolvency) depends on explanatory variables. The most common approach is to define a variable called a hazard rate (also referred to as a force of mortality and a failure rate) that measures the conditional probability density of the occurrence of the event as a function of time and selected explanatory variables. The method allows for the examination of the causal factors possibly related to insolvency by finding whether the explanatory variables significantly affect the hazard rate. In a study of the duration of insurer insolvencies, the two states "solvent" and "insolvent" are distinguished. …

106 citations

Journal ArticleDOI
TL;DR: In this article, the authors identify a set of factors exogenous to individual property-liability insurers that are statistically related to the overall rate of insurer insolvencies and show that these factors are important predictors of insurer failure rates.
Abstract: This article identifies a set of factors exogenous to individual property-liability insurers that are statistically related to the overall rate of insurer insolvencies. This approach represents a departure from the methodologies of prior studies which have focused primarily on firm-specific characteristics in assessing insolvency risk. The study uses quarterly data for the period 1970 through 1990. The empirical results support the hypothesis that economic and insurance market variables are important predictors of property-liability insurer failure rates. The sensitivity of the insurer insolvency rate to two of the insurance market factors is particularly striking: A 10 percent reduction in the number of property-liability insurers results in an 82 percent reduction in the insolvency rate, all else equal. A reduction of five points in the combined ratio results in an 18 percent reduction in the insolvency rate.

98 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). Hence, firm size is an important determinant of the financial strength of insurers both in developing and developed economies....

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  • ...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....

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