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Underwriting Capacity and Financial Performance on Non-Life Insurance Companies in Nigeria

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Listed:
  • Y. A. Oyetayo
  • O. A. Abass

Abstract

nsurance business model is uniquely different from other financial institutions. This is because its operation relies on the projection of expected future risk (claims cost) before risk can be accepted. Hence, performance this role rests on the available underwriting capacity before risk can be assumed. Cumulative underwriting capacity of insurance companies in Nigeria seems weak compared to the quantum of gross premium generated. This is evident in their inability to assume larger unexpected risks especially in energy and aviation market. Therefore, the aim of this study is to examine the impact of joint underwriting capacity variables on the financial performance of non-life insurance companies in Nigeria. The study adopted correlational research design. A census of forty-one (41) non-life insurance companies operating in Nigeria as at December, 2019 were used for the study. The study made use of aggregate annual reports of all the forty-one companies operating in Nigeria over a ten year period of 2008 to 2017. The study used reserve, reinsurance utilisation and shareholders’ fund as underwriting capacity variables while solvency, liquidity and profitability (ROA) were used as indicators of financial performance. The study revealed that underwriting capacity variables (reserves, reinsurance utilisation and shareholders’ fund) jointly have significant impact on the financial performance of non life insurance companies in Nigeria with a p-value of 0.0054. However, the individual check of the variables showed reserve has no significant influence on the financial performance. This implies an insurance company will want to avoid depleting its reserve since it is statutory and highly regulated. The study therefore recommended that non-life insurance companies in Nigeria must strive to constantly increase their financial capabilities and strategize their underwriting tentacles when assuming risk from insuring public.

Suggested Citation

  • Y. A. Oyetayo & O. A. Abass, 2020. "Underwriting Capacity and Financial Performance on Non-Life Insurance Companies in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(2), pages 73-80, June.
    • Handle: RePEc:khe:scajes:v:6:y:2020:i:2:p:73-80
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    References listed on IDEAS

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    More about this item

    Keywords

    Underwriting capacity; financial performance; ruin theory; reserve; insurance;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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