FACTORS THAT DETERMINE INSURANCE COMPANY’S PROFITABILITY: A CASE OF ETHIOPIAN INSURANCE CORPORATION

Abstract

Insurance sector has its own importance because it is responsible to provide proficient financial aid, channel funds, utilization of resources in optimal manner and investor’s treatment. This study was identified the key factors that affect profitability of insurance companies, using the case study of the Ethiopian Insurance Corporation. Despite the fact that the determinant factors for profitability of insurance business are several in numbers, this study was limited only to those factors that have direct and immediate effect on profitability of EIC. The majors, among others, these are claim cost, underwriting result, commission expense, Expense ratio, Return on Investment (ROI), inflation and reinsurance dependency. This study was primarily a case study and therefore, the research was employed quantitative research approach. The data was analyzed with the help of the Statistical Package for Social Sciences (SPSS) version 23 and eviws8. The analysis of this study was being perform using Descriptive analysis using Pearson correlation analysis to observe significance relation between profitability and the determinants and multiple regressions to observe the impact of each determinant separately and as whole. (2000-2019)Secondary data was obtained from the financial statements and finical indicators of Ethiopian Insurance Corporation, and financial publications of NBE are going to be analyzed. The findings of the study showed that return on investment have statistically significant relationship with profitability of EIC. However claim cost and commission expense, expense ratio and inflation has negative but insignificant relationship with EIC profitability. And also underwrite result and Reinsurance dependency have positive but insignificant relationship with profitability of EIC Therefore; the study recommends that Ethiopian insurance corporation focus on investment opportunities and other factor for instance management quality, service quality and public attitude and etc.