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Profitability determinants of cooperative Islamic insurance companies

Author

Listed:
  • Atila Savai

    (National Council of the Hungarian Ethnic Minority)

  • Milos Pjanic

    (University of Novi Sad)

  • Mirela Mitrasevic

    (University of East Sarajevo)

  • Nada Milenkovic

    (University of Novi Sad)

Abstract

The aim of the paper is to investigate the profitability determinants of cooperative insurance companies in Saudi Arabia. The mentioned insurance companies conduct business activities on the largest Islamic insurance market in the world, which has a growing demand for insurance as an instrument of risk management and a meaningful potential for further growth. A particular motive for conducting this research was the fact that these companies have common characteristics with mutual insurance companies that represent one-third of the European insurance market. Taking into account the characteristics of cooperative insurance companies’ business operations and the special structure of financial reports of these insurers relying on and in accordance with the results of the latest research on this topic as profitability determinants, we use return on assets (ROA), return on equity (ROE) and earnings per share (EPS), while explanatory variables include microeconomic (company size, investment profitability, investment income ratio, operator’s fee, expense ratio, loss ratio, premium growth, risk exposure, capital adequacy, reinsurance dependence, specialization) and macroeconomic (interest rate and equity returns) variables. The data are collected on a quarterly basis for 28 companies from 2012 until the second quarter of 2020. We use first- and second-generation unit-root tests, heteroscedasticity test, cross-sectional dependence test, autocorrelation test, Hausman and Overid tests and multicollinearity test to determine model parameters. Due to the presence of heteroscedasticity and cross-sectional dependence, we analyze the data using Beck and Katz’s panel corrected standard errors (PCSE) method. The results suggest that the financial performance of cooperative insurance companies in Saudi Arabia is determined by expense ratio, loss ratio, specialization (general or life and composite insurer) and the value of the operator’s fee, which depends on the amount of the underwriting surplus. Taking into account the key characteristics of cooperative insurance companies, the results of our research can be used by decision makers of cooperative insurance companies in strategic and operational planning and can provide help for policymakers in other countries that use alternative insurance models.

Suggested Citation

  • Atila Savai & Milos Pjanic & Mirela Mitrasevic & Nada Milenkovic, 2025. "Profitability determinants of cooperative Islamic insurance companies," E&M Economics and Management, Technical University of Liberec, Faculty of Economics, vol. 28(1), pages 170-188, March.
    • Handle: RePEc:bbl:journl:v:28:y:2025:i:1:p:170-188
    DOI: 10.15240/tul/001/2025-1-011
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    References listed on IDEAS

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    1. Gaganis, Chrysovalantis & Hasan, Iftekhar & Pasiouras, Fotios, 2020. "Cross-country evidence on the relationship between regulations and the development of the life insurance sector," Economic Modelling, Elsevier, vol. 89(C), pages 256-272.
    2. Wael Hemrit, 2020. "Determinants driving Takaful and cooperative insurance financial performance in Saudi Arabia," Journal of Accounting & Organizational Change, Emerald Group Publishing Limited, vol. 16(1), pages 123-143, January.
    3. Mirela Mitrasević & Miloš Pjanić & Milijana Novovic Burić, 2022. "Relationship Between Insurance Market and Economic Growth in the European Union," Politická ekonomie, Prague University of Economics and Business, vol. 2022(4), pages 395-420.
    4. Beck, Nathaniel & Katz, Jonathan N., 1995. "What To Do (and Not to Do) with Time-Series Cross-Section Data," American Political Science Review, Cambridge University Press, vol. 89(3), pages 634-647, September.
    5. Waheed Akhter & Saad Ullah Khan, 2017. "Determinants of Takāful and conventional insurance demand: A regional analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1291150-129, January.
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    More about this item

    Keywords

    Panel data analysis; Saudi Arabia; Sharia compliant insurance; panel corrected standard errors; financial performance;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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