Abstract
The financial system is the transmission channel of monetary policy. This study examines the effect of monetary policy on the performance of insurance firms in Nigeria from 1990 – 2017. The objective is to investigate the existing relationship between monetary policy instruments and the performance indicators of insurance companies. Secondary data were sourced from Stock Exchange factbook, Central Bank of Nigeria (CBN) Statistical Bulletin. Multiple linear regressions were formulated to examine the effect of the independent variables on the dependent variable. Return on equity was modeled as a function of treasury bill rate, monetary policy rate, interest rate, growth of money supply and exchange rate. R2, T-Statistics, β Coefficient, F-Statistics and Durbin Watson were used to examine the extent to which the independent variables affect the dependent variables while augmented dickey fuller unit root test, granger causality test, cointgration test and error correction models was used to ascertain the dynamic relationship between monetary policy variables and return on equity of the insurance firms. Findings revealed that, all the explanatory variables have positive effect on return on equity except treasury bill rate. The unit root test found that the variables are stationary at first difference, the cointgration test found the presence of long run relationship while the granger causality test found a uni-directional causality. The study concludes that monetary policy has moderate effect on the return on equity of the insurance firms. We recommend that management of insurance companies should devise measures of managing the negative effects of the monetary policy instruments to enhance the performance of the insurance companies.
Highlights
Monetary policy has long been acknowledged as instrument used to influence investment and other macroeconomic indicators
Ornella and Anderloni (2014) tested the impact of several firm characteristics, such as dimension, capital structure and investment policies on economic performance for a panel of non-life insurance firms operating in the main European markets spanning from 2004 to 2012.The findings suggest that various factors contribute to the performance measured by return on equity and return on asset
Analysis and Discussion of Findings To contribute on the existing body of knowledge on the effect of monetary policy on the performance of insurance companies in Nigeria, this study used data sourced from Central Bank of Nigeria Statistical Bulletin, comprising Growth rate of Money Supply, Interest rate, Monetary Policy rate, Exchange Rate and Treasury Bill Rate variable as independent variables while insurance performance is the dependent variables which is proxy by return on capital employed of the industry
Summary
Monetary policy has long been acknowledged as instrument used to influence investment and other macroeconomic indicators. The opinion that the non-banks financial institutions matters in the transmission of monetary policy can be traced to the Radcliffe committee meeting of 1950s which suggested strongly that the non- bank financial institutions such as insurance companies can influenced and be influenced by monetary policy and thereby be brought under the control of monetary authorities This led to the redefinition of money supply as Ms = C+ DD + SD + TD + NBFI (Onoh, 2002). The effect of monetary policy variables such as interest rate, money supply, monetary policy rate and liquidity on the qualitative measures of insurance of insurance performance such as profit, investment, employment and cash flow is lacking in Literature It is generally accepted in theory and principle that the financial sector which www.cribfb.com/journal/index.php/amfbr
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