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JEL Classification System

G22, L25, C33

Abstract

Insurance acts as a social instrument that indemnifies the human life and properties against unforeseeable risks. It is imperative for the insurance companies to be profitable while obliging the society and nation as a risk saver of insurable risk. The research aims to investigate the association between specific internals and macroeconomic factors and the financial performance of insurance companies in Ethiopia. A quantitative approach is applied in this research by adopting inferential statistics with a balanced panel data of nine insurance companies for 15 years (2002–2016). Explanatory analysis is deployed where Pearson’s correlation and OLS regression model are applied to examine the association between dependent and independent variables. GDP per capita and size of the companies demonstrate a positive and significant association, whereas leverage, liquidity, and underwriting risk are negative but significant with returns of assets. The growth of assets accelerates financial performance through the establishment of more branches and improved living situation of the people. Additionally, reduction of underwriting risk by transferring surplus risk to the reinsurers, managing capital structure with minimum dependence on borrowed capital, and deployment of premium earned in return fetching investments speed up the financial performance of insurance companies.

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