DETERMINANTS OF THE PROFITABILITY OF MOTOR INSURANCE POLICY IN ETHIOPIA

Abstract

The purpose of this study was to find out the determinants of insurance profitability in Ethiopia; In order to achieve this objective, this study used quantitative research approach using Panel data covering thirteen year period from 2005–2017 for six insurance companies. The study uses linear regression model to see the effect of independent variables, which were both OLS and Random Effect Model was employed to see the effect on profitability of motor insurance. Data was analyzed with software STATA 13.The findings of the study showed that Size of company and compulsory third party had a portative effect on ROA both on OLS and random effect model; number of car accident and inflation also show a negative and significant relationship with ROA both on OLS and random effect model. However, the variable GDP shows significant effect on OLS but not on random effect model. On the other hand, the variables age of the insurance company didn’t show a significant association with return on asset both in OLS and random effect model. The study provides evidence that compulsory third party and number of car accident 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.