Macroeconomic and Firm Specific Determinats of Profitability of Insurance Industry in Ethiopia

Abstract

This study was conducted on the determinants of profitability of Ethiopian insurance industry. The study attempts to examine the firm specific factors which are age of company, size of company, leverage ratio, liquidity ratio, premium growth, technical provision, underwriting risk, solvency, reinsurance dependency and tangibility of assets and macroeconomic factors; GDP and Inflation on profitability of Ethiopian insurance industry. Nine insurance companies from the total of 17insurance companies established before 2008 were included in the study. Secondary data that was collected from the financial statements (Balance sheet and income statements) of insurance companies; and annual reports of National bank of Ethiopia are the major sources of data for this study. This study found that under writing risk, technical provision, leverage and inflation have negative and significant effect whereas premium growth, age of the company, solvency ratio and GDP have statically positive and significant relationship with the profitability of Ethiopian insurance industry. However, the study found that liquidity, re-insurance dependency, tangibility of assets and company size have no significant effect on the profitability of insurance industry in Ethiopia.