Abstract
Insurance firms assume different types of business-specific risks that affect financial operations. The study therefore investigates the effect of these insurance specific risks on profitability in Nigeria over the 10-year period (2009-2018) with a sample size of 19 firms. Three variables, such as Re-insurance, Technical Provisions and Underwriting Risks, have been used as a measure of insurance specific risk for independent variables. The net profit margin was used as a measure of profitability for the dependent variable. The study is based on the Ex-Post Facto Research Design, which uses data already collected for the study. The study used secondary data from their annual reports. The results of the fixed effect regression model showed that the technical provision and the underwriting ricks had a negative and significant impact on profitability, while the re-insurance risk had a negative and insignificant impact on profitability. The study concludes that an increase in technical provision and risk underwriting will lead to a poor profitability of the insurance companies listed in Nigeria. The study recommends that insurance companies in Nigeria should make sufficient provision for outstanding claims by conducting an adequate assessment of their liabilities and also taking into account past experience to develop a comprehensive procedure for effectively monitoring and controlling their outstanding claims.
Highlights
With the intention of gaining returns on its investment, each investor undertakes investment carefully
The net profit margin reveals an average value of 2% and a standard deviation of 42% indicating that the sampled firms are widely spread out from the mean
It further reveals that insurance firms in Nigeria follows similar pattern in term of risk associated with reinsurance
Summary
With the intention of gaining returns on its investment, each investor undertakes investment carefully. Cash-backed income would allow management to allocate dividends to the owners [21]. He states that profitability should better be calculated in terms of gross profit margin (GPM) net profit margin (NPM) for the period, revenue gain (ROA), earnings gain (ROE) and return on capital invested (ROCE). Profitability ratios measure the ability of the company to produce income and core revenue for financial analysis, creditors, and customers, and can be considered as the main indicator of the company's overall performance. Competitiveness is important to a company's sustainability and development as it dictates the ability of a company to manufacture and deliver quality products and services, to provide for workers by payment of salaries and other benefits, to satisfy investor (shareholder) demands and to fulfill social obligations [7]. Profitability serves as a metric of market performance, plays a central role in certain management decisions, and determines the capacity of a company to invest [12]
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