FACTORS AFFECTING PROFITABILITY OF INSURANCE COMPANIES IN ETHIOPIA

Abstract

Insurance is one of the major risks of justifying mechanisms in the modern economy. The existence and survival of financially strong insurance companies are therefore predictable. For insurers to be reliable and financially sound, their profitability and most importantly knowing what factors make them profitable is a very vital objective. To achieve this objective, this study used a quantitative research approach using Panel data covering five years period from 2014–2018 for seventeen insurance companies. The study used a linear regression model to see the effect of independent variables, which were the factors under study, on dependent variable profitability peroxide by ROI. Data were analyzed with software Eviws8. The findings of the study showed that reinsurance dependency, Market share, gross domestic product, and inflation is positively and significantly affect profitability and volume of the capital is negatively and significantly affect the profitability of insurance companies in Ethiopia, while the size of the company, age of the company, liquidity and underwriting risk is positively and insignificantly affect the profitability of insurance companies in Ethiopia. The study provides evidence that the company volume of capital, market share, reinsurance dependency, and inflation and GDP are important factors affecting the profitability of insurance companies in Ethiopia. Therefore, the study recommends that Ethiopian insurance companies should give due consideration to these factors to address profitability issues.