The Effects Of Risk Management On Financial Performance Of Ethiopian Insurance Companies

The study focuses on the investigation of the risk management factors that affect the financialrnperformance of the Ethiopian insurance industry. Managing risks is an important factorrnwhich insurers must attend to achieve their financial performance. From this perspective, riskrnmanagement becomes one of the most important practices to be used in insurers in order to getrnhigher returns. Therefore, this study is attempted to ascertain the relationship between riskrnmanagement and financial performance of insurers in Ethiopia. In order to achieve thisrnobjective, the study used explanatory research design, mixed research approach. Panel datarncovering eleven-years (2005–2015) are analyzed for nine insurers in Ethiopia. Also in-depthrninterview is conducted with the NBE officers. The results of the fixed effect regression modelrnrevealed that technical reserve and liquidity risks have negative & significant impact on ROArn(proxy measure for financial performance) of non-life insurers in Ethiopia, whereas companyrnsize and reinsurance risk have positive & significant effect on ROA. The study led to thernconclusion that technical reserve, size of a company, reinsurance risks and liquidity risk arernthe pull factors for the financial performance of insurers. On the basis of these findings, thernstudy recommends that there is greater need for Ethiopia insurers to manage the risksrnparticularly technical reserve risk, reinsurance risk and liquidity risk more integrally. Thernstudy also recommends Ethiopian insurers to increase their size by enhancing their assetsrnbase.rnKeywords: risk management, financial performance, insurance companies

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