Determinants of Profitability in Private Insurance Companies in Ethiopia

Abstract

This study analyzes the determinant of profitability of private insurance company in Ethiopia over the period from 2005 to 2015 by using non probability judgment sampling design of eight private insurance companies’ for the econometrics analysis of multiple regressions of fixed effect approach of panel data. The constituent of firm specific and macro variable (Underwriting risk, Reinsurance Dependence, Solvency Ratio, Premium growth, Company Size and macro factor Growth rate of GDP, Inflation and Interest Rate)analysis was made to investigate the determinants of private insurance company profitability. The fixed effect  panel data model regression analysis shows that  private insurers’ profitability is statistically significantly affected by firm specific factor which is underwriting risk negatively, company size positively, premium growth positively, and solvency ratio negatively and reinsurance dependency has no influence on profitability and statistically insignificant. The macroeconomic variable economic growth rate has significant influence on profitability and inflation has insignificant influence on insurers’ profitability whereas interest rate which measured by time deposit weighted average was insignificant variable. The study recommended that private insurance companies should reduce the impact of underwriting risk by improving their underwriting performance through techniques like risk and product selections with geographical and different pricing strategy, private insurance company should improve underwriting in favor of economic growth of the country via identifying the potential and priority direction of the overall economic activity and growth of the country. Private insurance company should also increase their company asset.

Keywords: profitability, determinants, private insurance, Ethiopia