Determinants Of Insurance Companies' Profitability In UAE

The insurance sector plays an important role in the service-based economy of UAE, and its services are now being integrated into the wider financial services industry. This study investigated the determinants of the profitability in insurance companies in UAE. Specifically, the study examines the effects of the independent variables (age of company, company size, volume of capital, leverage ratio and loss ratio) on profitability proxied by ROA. A key indicator of insurance companies profitability in this study is the return on assets (ROA), defined as the before-tax profits (BTP) divided by total assets (TA). This study uses a sample from the UAE insurance companies' annual reports during the period (2004-2007) to investigate the determinants of profitability. The finding from this study shows that there is no relationship between profitability and age of company, and, there is significantly positive association between size and profitability. The result also shows that the volume of capital was positively related to the profitability, this relationship is also significant. Consistent with what have been hypothesized the study suggests an opposite and significant relationship between leverage ratio and loss ratio as independent variables and profitability.