Determinants Of Insurance Companies Profitability In Ethiopia

This study examines internal and external factors affecting insurance companies’rnprofitability in Ethiopia. Profitability is proxied by ROA, which is a key indicator ofrninsurance companies’ profitability.rnAs internal explanatory variables company size,rnleverage, liquidity, firm growth, age, volume of capital and tangibility are used,rnmoreover, as external explanatory variables inflation and GDP are also used to examinernthe most determinants of profitability of insurance companies.rnPanel data covering the period of 2005 to 2014 are analyzed for nine insurancerncompanies. The study uses multiple linear regression models, and fixed effect techniquernhas been applied to find out the most significant variables which affect the insurancerncompanies’ profitability. As a result, the result shows that from internal factors leverage,rnfirm growth and tangibility of assets are the most significant determinants of profitabilityrnof insurance companies in Ethiopia, of which, firm growth has positive impact, on thernother hand leverage and tangibility of assets have negative impact on profitability ofrninsurers. From macroeconomic factors, inflation has a negative and significant impactrnon insurers’ profitabilityrnThe result also reveals that company size, company age and GDP growth shows positivernbut insignificant relationship with insurers’ profitability. And liquidity has negative andrninsignificant relationship with insurers’ profitability.rnKey words: Determinants; profitability; insurance

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