A Study on Nexus Between Reinsurance Dependency and Profitability in Ethiopian Insurance Sector with Special Reference to Property and Causality insurance

Abstract

This study intends to investigate the nexus between reinsurance dependency and profitability in Ethiopian insurance sector with special reference to Property and Causality insurance on basis of data covers six years (2011-2016) period. The study selected sample of twelve (12) insurance companies to investigate them for six consecutive years (2011-2016) with total of 72 observations through panel data. Accordingly, the study used documentary analysis of companies’ audited financial statements for general insurers which obtained from National Bank of Ethiopia and head office of each insurance companies. The reinsurance dependence is considered as an explanatory variable and its influence on profitability measured by return on asset (ROA) from the prominent previous studies were considered as dependent variable.  The OLS were tested and the residual was found to be free of Multicollinearity. The results of panel least square regression analysis indicate that reinsurance dependence has a negative and statistically significant relationship with general insurance companies’ profitability. Based on this finding, the study suggests that, the management bodies of the insurance companies should give high attention on reducing the amount of premium ceded by the insurers since it will reduce the profitability by better internal control to achieve superior profitability.

Keywords: Property and Causality Insurance, Profitability, Reinsurance

DOI: 10.7176/RJFA/11-21-04

Publication date: November 30^th 2020