FACTORS AFFECTING INSURANCE COMPANIES PROFITABILITY IN ETHIOPIA

Abstract

Insurance is one of the major risks mitigating mechanism in modern economy. The existence and survival of financially strong Insurance Companies is therefore inevitable. For Insurers to be reliable and financially sound, their profitability and most importantly knowing what factors makes them profitable is very crucial objective. In order to achieve this objective, this study used quantitative research approach using Panel data covering ten-year period from 2006–2015 for nine insurance companies. The study uses linear regression model to see the effect of independent variables, which were the factors under study, on dependent variable profitability proxied by ROA. Data was analyzed with a software Eviws8.The findings of the study showed that Size of company, Loss ratio and leverage have statistically significant relationship with insurers’ profitability. However, reinsurance dependence has negative but insignificant relationship with profitability. On the other hand, variables like Motor insurance, market share have positive and statistically insignificant relationship with insurers’ profitability. Motor insurance is the other most important factor affecting profitability In addition, economic growth rate and inflation have negative and insignificant influence on profitability. The study provides evidence that company size, Loss ratio, and Leverage are most important factors affecting profitability of insurance companies Ethiopia. Therefore; the study recommends that Ethiopian insurance companies should give due consideration to these factors to appropriately address profitability issues.