| 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. |
