Factors Influencing Profitability In The Ethiopian Private Insurance Companies

Profitability is one of the most important determinants of insurers’ performance and healthiness.rnThis paper empirically investigates the link between the micro and macroeconomic environmentrndeterminants of profitability of private insurance companies for the period 2005-2015. Inrnlight of prior literature, key explanatory variables were identified to disclose theirrnrelationship and influence on profitability. These variables are liquidity, leverage, firm’srnsize, firm growth, risk, tangibility of asset, economic growth, inflation, trade openness andrnurbanization. The assumptions needed to be fulfilled for OLS were tested; the data was foundrnhomoscedastic, free of multicollinearity, free of autocorrelation and normally distributed.rnResults using panel least square regression exhibited that leverage, firm growth, inflationrngrowth, risk and urbanization has a significant relationship with profitability. Also, the studyrnfound that liquidity, firm size, tangibility of asset and trade openness were found to berninsignificant in profitability of Ethiopian insurance companies. Board of directors andrnmanagers of insurance companies need to consider these variables while designing theirrnstrategic plan. The conducted empirical analysis allows regulators to better understand andrnroughly quantify those effects which might support discussion with insurers resulting in somernmitigating actions. Further research needs to be done to develop top-down stress testrnmethodologies to fully assess the impact of the low yield environment in combination with a sharprnincrease of other macro-economic factors, on insurers’ profitability as well as solvencyrnpositionsrnKey Words: Return on Asset, profitability; insurance companies

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