Factors affecting profitability of insurance companies in Ethiopia: panel evidence

Abstract

This paper examined the effects of firm specific factors (age of company, size of company, leverage ratio, premium growth rate, liquidity ratio and tangibility of assets) on profitability proxy by ROA. Profitability is dependent variable while age of company, size of company, premium growth rate, leverage, liquidity ratio and tangibility of assets) are independent variables. The sample in this study includes nine of the listed insurance companies for twelve years (2005 to 2016). Secondary data obtained from the financial statements (Balance sheet and Profit/Loss account) of insurance companies, financial publications of NBE are analyzed. Panel data analyzed using Random Effect Model (REM) after testing the appropriateness of the model with Fixed Effect Model. From the regression results; size, premium growth rate and leverage and age are identified as most important determinant factors of profitability hence premium growth rate and size, are positively related. In contrast leverage and age negatively but significantly related with profitability. Lastly, liquidity and tangibility of asset are not significantly related with profitability.