On the Technical Characteristics of Insurance Operations and Financial Performance of Non-life Insurance Companies in Nigeria.
Keywords:
Firm size; Reserves; Capital Adequacy; Underwriting Capacity; Return on Asset, Return on Equity; Return on InvestmentAbstract
The inverse cycle nature of insurance business suggests the adoption of unique firm characteristics upon which its operations rely. These characteristics to a large extent determine risk exposure, underwriting capacity, risk appetite, risk tolerance among others. This study evaluated the impact of these technical characteristics on the financial performance on non-life insurance companies in Nigeria. This study adopted descriptive research design and relied on secondary data of all the non-life companies operating in Nigeria between 2006-2019. Data were gathered from the annual financial statements as contained in NIA, a publication of Nigeria Insurers Association. The study used firm size, premium growth, loss ratio, liquidity, investment, capital adequacy, reserves and underwriting capacity as proxies of technical characteristics while return asset, return on equity and return on investment were used as proxies of financial performance. The results revealed a significant impact of joint technical characteristics variables on the financial performance. Specifically, the study revealed that reserves, shareholders’ fund, firm size, capital adequacy and premium growth are the main technical characteristics that influence the financial performance. The study recommended that non-life insurance companies must constantly monitor their reserves, increase shareholders fund, increase capital base, capital adequacy, and grow their portfolio through premium generation.
References
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insurance business in Nigeria. Academic Journal of Economic Studies, 5(4), pp. 36–43.
Abate, G. (2012). Factors affecting profitability of insurance company in Ethiopia: panel evidence.
Thesis Submitted to the Department of Accounting and Finance Addis Ababa University, Ethiopia.
Abdeljawad, I. & Dwaikat, L. M. (2019). The determinants of profitability of insurance companies in
Palestine. Faculty of Economics and Social Sciences,
https://repository.najah.edu/bitstream/handle/20.500.11888/14257.
Adam, M. & Buckle, M. (2003). The determinants of operational performance in the Bermuda
insurance market. Working Paper, European Business Management School, University of Wales.
Ajao, M. G. & Ogieriakhi, E. (2018). Firm specific factors and performance of insurance firms in
Nigeria. Amity Journal of Finance, 3(1), pp. 14-28.
Almajali, A. & Yahya, Z. (2012). Factors affecting the financial performance of Jordanian insurance
companies listed at Amman Stock Exchange. Journal of Management Research, 4(2), pp. 266-289.
Al-shami, H. (2008). Determinants of insurance company’s profitability in UAE. Unpublished MSC
Thesis, Utara Malaysia University, Kedah, Malaysia. Retrieved from www.ep3.uum.edu.my/256/.
Anand Rathi Wealth Service Limited (2019). Annual report 2018-2019.
Ashraf, S. H. & Singhal, N. (2016). Strategies for long term investment by non-life companies in India.
Arabian Journal of Business and Management Review, 6(6), pp. 2-7.
Bannier, C. E. & Hansel, D. N. (2008). Determinants of European banks’ engagement in loan
securitization. Conference on the Interaction of market and credit risk. 6-7 2007, Berlin.
Batool, A. & Sahi, A. (2019). Determinants of financial performance of insurance companies of USA
and UK during global financial crisis (2007-2016). International Journal of Accounting Research,
7(194), pp. 01-09.
Bhunia, A., Mukhuti, S. S., & Roy, S. G. (2011). Financial performance analysis-a case study. Current
Research Journal of Social Sciences, 3(3), pp. 269-275.
Burca, A. M., & Batrinca, G. (2014). The demand for reinsurance in the Romanian insurance market.
International of Academic Research in Accounting, Finance and Management Sciences, 4(1), pp. 299-
308.
Carton, R. B. (2004). Measuring organisational performance: an exploratory study. The University of
Georgia, Athens, Georgia. Retrieved from
https://getd.libs.uga.edu/pdfs/carton_robert_b_200405_phd.pdf.
Cenfri, (2018). The role of insurance in inclusive growth: Nigeria in brief.
Charumathi, B. (2012). On the determinants of profitability of Indian life insurers- an empirical study,
Proceedings of the World Congress on engineering, pp. 978-988, London, 2012 & July. London, UK:
ISBN.
Daniel, M. & Tilahun, A. (2013). Firm specific factors that determine insurance company
performance in Ethiopia. European Scientific Journal, 9 (10), pp. 245-255.
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: decision
tree approach. Journal of Expert System with Applications, (40), pp. 3970-3983.
Dogan, M. (2013), Does firm size affect the firm profitability. Evidence from Turkey. Research Journal
of Finance and Accounting, 4(4), pp. 53-59.
Efuntade, A. O. & Akinola, A. O. (2020). Firm characteristics and financial performance in quoted
manufacturing companies in Nigeria. International Journal of Business and Finance Management
Research, 7(1), pp. 25-32.
Epetimehin, F.M. (2014) Investment: an index of growth in insurance industry. JORIND 12 (1) June,
2014. ISSN 1596-8308. www.transcampus.org/journals; www.ajol.info/journals/jorind
Etale, L. M. (2019). Insurance sector development and economic growth in Nigeria: an empirical
analysis. International Journal of development and Economics Sustainability, 7(4), pp. 34-48.
Greene, W. & Segal, D. (2004). Profitability and efficiency in the US life insurance industry. Journal
Of Productivity Analysis, 21(3), pp. 229-247.
Hardwick, P. (1997). Measuring cost inefficiency in the UK life insurance industry, applied financial
economics. Administrative Science Quarterly, 45(1), pp. 81–112.
Iswatia, S. & Anshoria, M. (2007). The influence of intellectual capital to financial performance at
insurance companies in Jakarta Stock Exchange (JSE), Proceedings of the13th Asia Pacific
Management Conference, Melbourne, Australia.
Harrison, J., Rouse, P., & De Villiers, C. (2012). Accountability and Performance measurement: a
stakeholder perspective. Journal of CENTRUM Cathedra, 5 (2), pp. 243-258.
Ikonić, D., Arsić, N. & Milošević, S. (2011). Growth potential and profitability analysis of insurance
companies in the Republic of Serbia. Chinese Business Review, 10(11), pp. 998-1008.
Koc, I. O. (2016). Determining factors in financial performance of publicly traded insurance companies
at Istanbul stock exchange. International Journal of Business and Social Science, 7(11), pp. 169-177.
Kaya, O. E. (2015). Capital adequacy in the insurance business and assessment of Turkish insurance
sector within the scope of solvency II. Ph.D. Thesis, Gazi University, Ankara, Turkey.
Kneysler O. (2009), Практичні засади управління активами страхової компанії, Scientific notes.
Series “Economy”, 12, pp. 224–235.
Kozak, S. (2011). Determinants of profitability of non-life insurance companies In Poland during
integration with the European financial system, Electronic Journal of Polish Agricultural Universities,
14(1), pp. 1-9.
Liu, H. H., Shiu, Y. M. & Liu, T. C. (2016). Reinsurance from the United Kingdom general insurance
industry. Geneva Papers on Risk and Insurance Industry, 41(2), pp. 307-324.
Loomba, J. (2014). Risk Management and Insurance Planning. Delhi, India: PHI Learning Private
Limited.
Malik, H. (2011). Determinants of insurance companies’ profitability: an analysis of insurance sector
of Pakistan, Academic Research International, 1(3), pp. 315-321.
Mankai, S., & Belgacem, A. (2013). Interactions between risk-taking, capital, And reinsurance for
property-liability insurance firms. Working Paper No. 2014-154.
.
Marcu, M. C. & Carstina, S. (2014). The relationship between insurance and economic growth in
Romania compared to the main results in Europe-theoretical and empirical analysis. Procedia
Economics and Finance, 8, pp. 226-235.
Mazviona, B., Dube, M. & Sakahuhwa, T. (2017). An analysis of factors affecting the performance of insurance companies in Zimbabwe. Journal of Finance and Investment Analysis, pp. 1-17.
Mehari, D., & Aemiro, T. (2013). Firm specific factors that determine insurance companies’ performance in Ethiopia. European Scientific Journal, 9(10), pp. 245-255.
Muema, F. M. & Abdul, F. (2021). Firm characteristics and financial performance of commercial banks listed on the Nairobi securities exchange. Journal of Economics and Finance, 12(3), pp. 01-13.
Ngwili, K. P. (2014). The relationship between liquidity and profitability of insurance companies in Kenya. A Research Project Submitted in Partial Fulfilment for the award of the degree of Masters of Business Administration, University of Nairobi. Retrieved from http://erepository.uonbi.ac.ke/bitstream/handle/11295/76818/Kiio_The%20relationship%20between%20liquidity%20and%20profitability%20of%20insurance%20companies.pdf.
Nigeria Insurers’ Digest (2020). Nigeria insurance digest. Nigerian Insurers Association; Lagos. Nigeria.
Nyabaga, R. M. & Matanda, J. W. (2020). Effect of firm characteristics on financial performance of
listed commercial banks in Kenya. International Journal of Economics and Financial Issues, 10(3),
pp. 255-262.
Ochingo, & Muturi (2018). Effect of firm characteristics on the financial performance of savings and
credit cooperatives society in Kenya. 17
Onaolapo, W. (2005) Imperatives of capital in insurance operations
Oyetayo, Y. A. & Abass, O. A. (2020). Underwriting capacity and financial performance of non-life
insurance in Nigeria. Academic Journal of Economics Studies, 6(2), pp. 73-80.
Osadez S. (2002), Страхування, tutorial / Ministry of Education and Science of Ukraine, Kyiv
National Economic University, Ukrainian financial and banking school, p. 599
Palande, P. S., Shah, R. S., Lunawat, M. L. (2003). Insurance in India: Changing policies and
emerging opportunities. New Delhi: Response Books.
Pervan, M., &Visic, J. (2012). Influence on firm size on its business success. Croatian Operational
Research Review,3, pp. 213-223.
Poudel, B. (2019). Impact of ownership structure on the profitability of Nepalese insurance companies.
Nepalese Journal of Business, 6(3), pp. 52-65.
Shulieshova, I., Domanska, T., & Wasilewski, M. (2015). Insurance reserves of insurance companies
in Poland and Ukraine as solvency basis and financial stability of insurance companies. Finanse,
Rynki Finansowe, Ubezpieczenia, 74(2), pp. 533-546.
Turley, G., & Robbins, G. (2015). A framework to measure financial performance of Local
Governments. Retrieved from http://www.tandfonline.com/loi/flgs20.
Soye, Y. A. & Adeyemo, D. L. (2018). Underwriting capacity and income of Insurance companies: (a
case of Nigeria). International Journal of Innovative Science and Research Technology, 3 (10), pp.
731- 738.
Too, I. C., & Simiyu, E. (2018). Firms’ characteristics and financial performance of general insurance
firms in Kenya. International Journal of business Management & Finance, 1(39), pp. 672-689.
Velnampy, T. & Niresh, J. (2012). The relationship between capital structure and profitability. Global
Journal of Management and Business Research, 12(13), pp. 66-73.
Wyn, J. (1998). The fourth wave, Best‟s Review, 99, pp. 53-57.
insurance business in Nigeria. Academic Journal of Economic Studies, 5(4), pp. 36–43.
Abate, G. (2012). Factors affecting profitability of insurance company in Ethiopia: panel evidence.
Thesis Submitted to the Department of Accounting and Finance Addis Ababa University, Ethiopia.
Abdeljawad, I. & Dwaikat, L. M. (2019). The determinants of profitability of insurance companies in
Palestine. Faculty of Economics and Social Sciences,
https://repository.najah.edu/bitstream/handle/20.500.11888/14257.
Adam, M. & Buckle, M. (2003). The determinants of operational performance in the Bermuda
insurance market. Working Paper, European Business Management School, University of Wales.
Ajao, M. G. & Ogieriakhi, E. (2018). Firm specific factors and performance of insurance firms in
Nigeria. Amity Journal of Finance, 3(1), pp. 14-28.
Almajali, A. & Yahya, Z. (2012). Factors affecting the financial performance of Jordanian insurance
companies listed at Amman Stock Exchange. Journal of Management Research, 4(2), pp. 266-289.
Al-shami, H. (2008). Determinants of insurance company’s profitability in UAE. Unpublished MSC
Thesis, Utara Malaysia University, Kedah, Malaysia. Retrieved from www.ep3.uum.edu.my/256/.
Anand Rathi Wealth Service Limited (2019). Annual report 2018-2019.
Ashraf, S. H. & Singhal, N. (2016). Strategies for long term investment by non-life companies in India.
Arabian Journal of Business and Management Review, 6(6), pp. 2-7.
Bannier, C. E. & Hansel, D. N. (2008). Determinants of European banks’ engagement in loan
securitization. Conference on the Interaction of market and credit risk. 6-7 2007, Berlin.
Batool, A. & Sahi, A. (2019). Determinants of financial performance of insurance companies of USA
and UK during global financial crisis (2007-2016). International Journal of Accounting Research,
7(194), pp. 01-09.
Bhunia, A., Mukhuti, S. S., & Roy, S. G. (2011). Financial performance analysis-a case study. Current
Research Journal of Social Sciences, 3(3), pp. 269-275.
Burca, A. M., & Batrinca, G. (2014). The demand for reinsurance in the Romanian insurance market.
International of Academic Research in Accounting, Finance and Management Sciences, 4(1), pp. 299-
308.
Carton, R. B. (2004). Measuring organisational performance: an exploratory study. The University of
Georgia, Athens, Georgia. Retrieved from
https://getd.libs.uga.edu/pdfs/carton_robert_b_200405_phd.pdf.
Cenfri, (2018). The role of insurance in inclusive growth: Nigeria in brief.
Charumathi, B. (2012). On the determinants of profitability of Indian life insurers- an empirical study,
Proceedings of the World Congress on engineering, pp. 978-988, London, 2012 & July. London, UK:
ISBN.
Daniel, M. & Tilahun, A. (2013). Firm specific factors that determine insurance company
performance in Ethiopia. European Scientific Journal, 9 (10), pp. 245-255.
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: decision
tree approach. Journal of Expert System with Applications, (40), pp. 3970-3983.
Dogan, M. (2013), Does firm size affect the firm profitability. Evidence from Turkey. Research Journal
of Finance and Accounting, 4(4), pp. 53-59.
Efuntade, A. O. & Akinola, A. O. (2020). Firm characteristics and financial performance in quoted
manufacturing companies in Nigeria. International Journal of Business and Finance Management
Research, 7(1), pp. 25-32.
Epetimehin, F.M. (2014) Investment: an index of growth in insurance industry. JORIND 12 (1) June,
2014. ISSN 1596-8308. www.transcampus.org/journals; www.ajol.info/journals/jorind
Etale, L. M. (2019). Insurance sector development and economic growth in Nigeria: an empirical
analysis. International Journal of development and Economics Sustainability, 7(4), pp. 34-48.
Greene, W. & Segal, D. (2004). Profitability and efficiency in the US life insurance industry. Journal
Of Productivity Analysis, 21(3), pp. 229-247.
Hardwick, P. (1997). Measuring cost inefficiency in the UK life insurance industry, applied financial
economics. Administrative Science Quarterly, 45(1), pp. 81–112.
Iswatia, S. & Anshoria, M. (2007). The influence of intellectual capital to financial performance at
insurance companies in Jakarta Stock Exchange (JSE), Proceedings of the13th Asia Pacific
Management Conference, Melbourne, Australia.
Harrison, J., Rouse, P., & De Villiers, C. (2012). Accountability and Performance measurement: a
stakeholder perspective. Journal of CENTRUM Cathedra, 5 (2), pp. 243-258.
Ikonić, D., Arsić, N. & Milošević, S. (2011). Growth potential and profitability analysis of insurance
companies in the Republic of Serbia. Chinese Business Review, 10(11), pp. 998-1008.
Koc, I. O. (2016). Determining factors in financial performance of publicly traded insurance companies
at Istanbul stock exchange. International Journal of Business and Social Science, 7(11), pp. 169-177.
Kaya, O. E. (2015). Capital adequacy in the insurance business and assessment of Turkish insurance
sector within the scope of solvency II. Ph.D. Thesis, Gazi University, Ankara, Turkey.
Kneysler O. (2009), Практичні засади управління активами страхової компанії, Scientific notes.
Series “Economy”, 12, pp. 224–235.
Kozak, S. (2011). Determinants of profitability of non-life insurance companies In Poland during
integration with the European financial system, Electronic Journal of Polish Agricultural Universities,
14(1), pp. 1-9.
Liu, H. H., Shiu, Y. M. & Liu, T. C. (2016). Reinsurance from the United Kingdom general insurance
industry. Geneva Papers on Risk and Insurance Industry, 41(2), pp. 307-324.
Loomba, J. (2014). Risk Management and Insurance Planning. Delhi, India: PHI Learning Private
Limited.
Malik, H. (2011). Determinants of insurance companies’ profitability: an analysis of insurance sector
of Pakistan, Academic Research International, 1(3), pp. 315-321.
Mankai, S., & Belgacem, A. (2013). Interactions between risk-taking, capital, And reinsurance for
property-liability insurance firms. Working Paper No. 2014-154.
.
Marcu, M. C. & Carstina, S. (2014). The relationship between insurance and economic growth in
Romania compared to the main results in Europe-theoretical and empirical analysis. Procedia
Economics and Finance, 8, pp. 226-235.
Mazviona, B., Dube, M. & Sakahuhwa, T. (2017). An analysis of factors affecting the performance of insurance companies in Zimbabwe. Journal of Finance and Investment Analysis, pp. 1-17.
Mehari, D., & Aemiro, T. (2013). Firm specific factors that determine insurance companies’ performance in Ethiopia. European Scientific Journal, 9(10), pp. 245-255.
Muema, F. M. & Abdul, F. (2021). Firm characteristics and financial performance of commercial banks listed on the Nairobi securities exchange. Journal of Economics and Finance, 12(3), pp. 01-13.
Ngwili, K. P. (2014). The relationship between liquidity and profitability of insurance companies in Kenya. A Research Project Submitted in Partial Fulfilment for the award of the degree of Masters of Business Administration, University of Nairobi. Retrieved from http://erepository.uonbi.ac.ke/bitstream/handle/11295/76818/Kiio_The%20relationship%20between%20liquidity%20and%20profitability%20of%20insurance%20companies.pdf.
Nigeria Insurers’ Digest (2020). Nigeria insurance digest. Nigerian Insurers Association; Lagos. Nigeria.
Nyabaga, R. M. & Matanda, J. W. (2020). Effect of firm characteristics on financial performance of
listed commercial banks in Kenya. International Journal of Economics and Financial Issues, 10(3),
pp. 255-262.
Ochingo, & Muturi (2018). Effect of firm characteristics on the financial performance of savings and
credit cooperatives society in Kenya. 17
Onaolapo, W. (2005) Imperatives of capital in insurance operations
Oyetayo, Y. A. & Abass, O. A. (2020). Underwriting capacity and financial performance of non-life
insurance in Nigeria. Academic Journal of Economics Studies, 6(2), pp. 73-80.
Osadez S. (2002), Страхування, tutorial / Ministry of Education and Science of Ukraine, Kyiv
National Economic University, Ukrainian financial and banking school, p. 599
Palande, P. S., Shah, R. S., Lunawat, M. L. (2003). Insurance in India: Changing policies and
emerging opportunities. New Delhi: Response Books.
Pervan, M., &Visic, J. (2012). Influence on firm size on its business success. Croatian Operational
Research Review,3, pp. 213-223.
Poudel, B. (2019). Impact of ownership structure on the profitability of Nepalese insurance companies.
Nepalese Journal of Business, 6(3), pp. 52-65.
Shulieshova, I., Domanska, T., & Wasilewski, M. (2015). Insurance reserves of insurance companies
in Poland and Ukraine as solvency basis and financial stability of insurance companies. Finanse,
Rynki Finansowe, Ubezpieczenia, 74(2), pp. 533-546.
Turley, G., & Robbins, G. (2015). A framework to measure financial performance of Local
Governments. Retrieved from http://www.tandfonline.com/loi/flgs20.
Soye, Y. A. & Adeyemo, D. L. (2018). Underwriting capacity and income of Insurance companies: (a
case of Nigeria). International Journal of Innovative Science and Research Technology, 3 (10), pp.
731- 738.
Too, I. C., & Simiyu, E. (2018). Firms’ characteristics and financial performance of general insurance
firms in Kenya. International Journal of business Management & Finance, 1(39), pp. 672-689.
Velnampy, T. & Niresh, J. (2012). The relationship between capital structure and profitability. Global
Journal of Management and Business Research, 12(13), pp. 66-73.
Wyn, J. (1998). The fourth wave, Best‟s Review, 99, pp. 53-57.
Published
2021-11-18
How to Cite
Abass, O., Dansu, S. F. ., & Oyetayo, Y. A. . (2021). On the Technical Characteristics of Insurance Operations and Financial Performance of Non-life Insurance Companies in Nigeria.: Array. Acta Universitatis Danubius. Œconomica, 17(6). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1443
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Financial Economics
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