The effect of financial risk has been considered to be an important issue on the performancernof insurance companies. This study empirically examines the effect of financial risk onrnperformance of insurance companies in Ethiopia and interprets the result by relating withrnthe regulations. The study used balanced panel model in examining the regression model andrncollect data from eight insurance companies covering the period of sixteen (16) consecutivernyears, 2000-2015. To this end, the study employed a mixed method research approach byrncombining documentary analysis and unstructured in-depth interviews. The study used panelrndata techniques specifically fixed effect model on the regression analysis and used E-view8rnsoftware. The study used one dependent variable return on asset (ROA), six independentrnvariables that are credit risk, liquidity risk, reinsurance risk, solvency risk, technicalrnprovisions risk and underwriting risk. The regression result show that credit risk, liquidityrnrisk, solvency risk, underwriting risk and technical provisions risk show negative andrnsignificant effect at 1% and 5% significance level on performance of insurance companies inrnEthiopia, where as reinsurance risk has insignificant effect at 5% significance level onrnperformance of insurance companies. The research concluded that financial risk hasrnsignificant effect on the performance of Ethiopian insurance companies. Hence, the studyrnrecommend in support of each variables for Ethiopian insurance companies to give duernattention on financial risk to enhance their performance significantly.rnKey words: - Insurance, Financial risk and Performance