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Determining the Financial Performance of Non-Life Insurers Static and Dynamic Panel Evidence from an Emerging Economy

Author

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  • Bipasha Barua
  • Suborna Barua
  • Rezwanul Hasan Rana

    (University of Dhaka, Bangladesh
    Federation University Australia
    University of Southern Queensland, Australia)

Abstract

Non-life insurance companies are an important part of the financial system in any country. Constant development and financial sustainability of these institutions is key to foster the rapidly growing economic activities of emerging economies like Bangladesh. This study made an attempt to establish the impact of different firm-specific factors on profitability using the non-life insurance sector in Bangladesh. A thriving insurance industry, especially in the non-life sector, can accelerate economic growth by mobilizing large funds and providing risk-hedging services to economic activities. This paper investigates the temporary and permanent impact of different firm-specific factors on financial performance, using the case of the non-life insurance sector in Bangladesh: one of the fastest growing economies in the world. Using panel data on 16 non-life insurance companies from 1999 to 2014, this paper utilizes both Static Panel Data (SPD) and Dynamic Panel Data (DPD) estimation techniques. For DPD estimation, a Pooled Mean Group (PMG) estimator built on an ARDL Framework that can produce short run and long run impacts separately has been employed. In addition to the average impact generated from static estimations, this paper identifies the significant impact of all variables on profitability in the long-term (those of a permanent nature) while the investment ratio shows some impact in the short-term (those of a temporary nature). The results of the study indicate that the average impact is predominantly derived from the long-term and thus appear to be permanent in nature. Moreover, investment ratio contributes positively to profitability, mostly in the short-term (temporarily) with some effects in the long-term. The findings on liquidity and investment ratio suggest the permanent nature of their impact on profitability in the long-term and, hence, insurers are probably better served investing funds in short-term opportunities (e.g. investing in securities) rather than in long-term ones. Lastly, the empirical results regarding the impact of leverage is not clear, as it shows mixed impact in two different estimations, including the permanent nature of negative impact in the long-term. The non-life insurance companies of Bangladesh should implement strong policies to reduce the faulty underwriting procedures to improve the profitability. This paper offers significant contributions to the literature by separately identifying the 'temporary' and 'permanent' impact of several determinants, thereby producing novel estimations for Bangladesh that may have implications for other emerging economies.

Suggested Citation

  • Bipasha Barua & Suborna Barua & Rezwanul Hasan Rana, 2018. "Determining the Financial Performance of Non-Life Insurers Static and Dynamic Panel Evidence from an Emerging Economy," Journal of Developing Areas, Tennessee State University, College of Business, vol. 52(3), pages 153-167, July-Sept.
  • Handle: RePEc:jda:journl:vol.52:year:2018:issue3:pp:153-167
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    Cited by:

    1. Alina Kulustayeva & Aigul Jondelbayeva & Azhar Nurmagambetova & Aliya Dossayeva & Aliya Bikteubayeva, 2020. "Financial data reporting analysis of the factors influencing on profitability for insurance companies," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(3), pages 2394-2406, March.
    2. Suchismita Ghosh & Ritu Pareek & Tarak Nath Sahu, 2024. "Do Carbon Performance and Disclosure Practices Effect Companies’ Financial Performance: A Non-Linear Perspective," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(3), pages 733-754, September.
    3. Abhijit Sharma & Diara Md. Jadi & Damian Ward, 2021. "Analysing the determinants of financial performance for UK insurance companies using financial strength ratings information," Economic Change and Restructuring, Springer, vol. 54(3), pages 683-697, August.

    More about this item

    Keywords

    Non-life insurance; Financial performance; Loss ratio; Premium growth; Profitability;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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