Capital structure decision is one of the core decisions that financial managers should care for.rnDifferent firms will have different choice of funds that are categorized under either debt orrnequity. But the most important question is what factors to affect their choice of finance and howrnthey affect it. In order to give answer for such question, this study aims to assess the impact ofrnfirm specific and macroeconomic factors on capital structure decision in the environment ofrnEthiopian insurance sector by using seven years data (2007-2013). In order to achieve this aimrnthe researcher regressed profitability, liquidity, business risk, size, growth opportunity, age,rnGDP growth rate, interest rate, and inflation rate against the dependent variable as measured byrntotal debt ratio. Such regression was made based on random effects model with the help ofrnEVIEWS 6 software. The results of this study suggest that business risk, firm size, age, andrninflation rate variables were significant factors affecting leverage of insurance firms in Ethiopiarnpositively; confirming tradeoff and pecking order theories as prominent theories for the sector.rnOn the other hand, profitability, liquidity, growth opportunity, GDP growth rate, and interestrnrate variables found as insignificant to affect the dependent variable. Thus, Ethiopian insurancernfirms and their managers are advised to have closer attention on business risk, size, age, andrninflation rate factors in order to make optimal decision pertaining to capital structure. Besides,rnthey also advised to give attention first for tradeoff then for pecking order theories of capitalrnstructure respectively as per their weight of importance