FACTORS AFFECTING PROFITABILITY OF INSURANCE COMPANIES IN ETHIOPIA

Abstract

Insurance services are now being integrated into wider financial industry and play an important role in countries economy. Profitability is one of the most important objectives of financial management because one goal of financial management is to maximize the owner` s wealth. The objective of this paper is to identify the factors affecting profitability of insurance companies in Ethiopia by examining internal and external factor affecting insurance companies’ profitability. Profitability is peroxide by ROA, which is a key indicator of insurance companies’ performance. In order to attain the objective the study used mixed research approach. Panel data covering twelve -year period from 2005 – 2016 are analyzed for nine insurance companies with a total of 108 data in-depth interview is conducted with company managers. The study uses multiple linear regression models, and fixed effect technique has been applied to find out the most significant variables which affect the insurance companies’ profitability. The findings of the study indicate that that loss ratio and technical provision have statistically significant and negative relationship with insurers’ profitability. However, interest rate, management competency index and solvency positive and significant relationship with profitability. On the other hand, inflation negative not statistically significant and GDP and asset tangibility have insignificant influence on insures’ profitability.