Determinants of profitablity on insurance companies in Ethiopia

This paper analyzes the effects of firm specific factors (Firm size, leverage ratio, tangibility of assets, liquidity ratio, loss ratio/risk, Firm growth and premium of growth) and macroeconomic factors (economic growth and inflation) on profitability Measured by ROA. The sample in this study includes ten insurance companies for ten years (2007–2016). Secondary data obtained from the financial statements (Balance sheet and Profit/Loss account) of insurance companies, and financial publications of MOFED are analyzed. From the regression result; size, leverage, tangibility of asset, loss ratio/risk, firm growth and premium growth are identified as significant determinants of profitability hence firm size, tangibility of asset, firm growth and, premium growth are positively related. In contrast, leverage and loss ratio/risk are negatively but significantly related with profitability. Liquidity, inflation, and economic growth are not significant determinants of profitability. In order to survive negative shocks and maintain a good financial stability, the financial managers and policy makers should identify the key performance determinants of insurance companies. Because of this, the current study specified an empirical framework to examine the firm specific and macroeconomic factors affecting profitability of insurance companies as measured by Return on Asset (ROA).