Effects of Reinsurance Utilisation on the Capital Adequacy of Non-life Insurance Companies in Nigeria
Abstract
Reinsurance is one the most significant risk management tools employed by primary insurers. Its level of utilisation is hinged on capital sufficiency of primary insurer. Despite its usefulness, many researchers have queried its excessive reliance. This study examined the effect of reinsurance utilisation on the capital adequacy of non-life insurance company in Nigeria. The study adopted a descriptive research design and relied on secondary data of gleaned from annual financial statements between 2011 and 2020. The study population comprised of all the fifty-six (56) non-life insurance firms in Nigeria. Stratified sampling technique was adopted in selecting twenty. These selected companies (market leaders) controlled more than 70% market share of the industry. The study adopted reinsurance dependence and reinsurance ceded proportion as proxies of reinsurance utilisation while financial leverage and return on asset were used as indicators of capital adequacy. The study revealed a significant joint effects of reinsurance utilisation on the return on asset and financial leverage of non-life insurance companies in Nigeria. The study recommended that reinsurance facilities be given adequate attention by insurance companies. More importantly, non-life insurance companies should diversify their investment portfolios and take into cognizance underwriting factors such as past loss experience, size of risks and frequency of losses.
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