June 10, 2025 Journal article Open Access

Abinet; Girma

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        <foaf:name>Abinet</foaf:name>
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        <foaf:name>Girma</foaf:name>
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    <dct:title>Factors Affecting the Profitability of Ethiopian Insurance Industry</dct:title>
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    <dct:issued rdf:datatype="http://www.w3.org/2001/XMLSchema#gYear">2025</dct:issued>
    <dcat:keyword>ROA, ROE, Internal Factors, Macroeconomic Factors, Profitabilit</dcat:keyword>
    <dct:issued rdf:datatype="http://www.w3.org/2001/XMLSchema#date">2025-06-10</dct:issued>
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    <dct:description>&lt;p&gt;The purpose of this research was to examine the effect of firm specific (internal) and macroeconomic (external) determinants of the profitability of Ethiopian Insurance Industry. The study also investigates the relationship between the hosts of variables with the profitability of insurance industry. To this end, explanatory research design and quantitative research approach is employed to attain the research objective and to answer the research questions. Furthermore, multiple linear regression analysis is employed as a method to analyse a balanced panel data acquired from secondary sources. In order to investigate the relationship between the dependent and independent variables, pooled OLS panel data regression is selected for both models to estimate ROA and ROE. In order to choose the appropriate model, Breusch-Pagan Lagrange Multiplier (LM) test is employed. In addition, Ramsey test for testing model misspecification and Pesaran CD test for testing cross sectional dependence is used in both models. In this research, Stata version 16 software is used as an econometric tool to estimate the variables employed in the panel models. The study utilized secondary data that were collected from audited financial statements which are published on the annual reports of each insurer and from the National Bank of Ethiopia (NBE) concerning the explanatory variables selected in the model. A panel of data covering twenty years period from 2002 &amp;ndash; 2021 having 140 observations are analysed for seven insurance companies out of the 18 insurance companies currently operating in the industry. These seven companies were chosen solely on the basis of their ability to provide the study with the necessary data. In this study, Return on Asset (ROA) and Return on Equity (ROE) are used as a proxy to the profitability and are served as the major dependant variables. Whereas, size of insurer, type of insurer, liquidity ratio, solvency margin, premium growth rate, loss ratio, expense ratio, leverage ratio, yield ratio, and reinsurance dependence are employed as independent internal variables. In addition, market share, real GDP growth rate, and general inflation rate are used as independent external factors. After appropriate diagnostic tests, the models&amp;rsquo; regression results revealed that size of insurer, liquidity ratio, yield ratio and reinsurance dependence have a positive and significant influence on ROA. While, solvency margin, loss ratio, expense ratio, leverage ratio, market share, and inflation rate have a negative and significant influence on ROA. However, type of insurer, premium growth rate, and GDP growth rate have no significant influence on profitability measured by ROA. In addition, size of insurer, liquidity ratio, yield ratio and reinsurance dependence have a positive and significant influence on ROE. While, solvency margin, loss ratio, expense ratio and market share have a negative and significant influence on ROE. However, type of an insurer, premium growth rate, leverage ratio, GDP growth rate and inflation have no significant influence on profitability measured by ROE. As a result, the study advises insurance companies to take these significant factors into account while addressing profitability concerns. Finally, the study suggests that insurance executives and legislators in the country take crucial steps toward enhancing insurers&amp;#39; total profitability by developing legislation and policies concerning on identified significant variables. These findings will help the insurance business, government, legislators, and investors in making decisions and improving performance.&lt;/p&gt;</dct:description>
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