What determines the financial performance micro or macro antecedents: A case of Indian general insurance

Abstract

AbstractThe insurance industry is vital to any economy, particularly a country's financial market. The attempt to investigate the economic performance of the insurance firms is due to a lack of empirical research in the general insurance sector in India on the economic performance of insurance organizations concentrating on firm‐specific and external aspects. Therefore, the Insurance companies in India were studied using econometric panel data of 21 firms for ten years, from 2010–2011 to 2019–2020. Firm‐specific factors (firm size, financial leverage, retention ratio, liquidity, premium growth rate, loss ratio, re‐insurance dependence, and macroeconomic factors (market share, GDP per capita, and inflation) are included in the model. Findings revealed that retention ratio, premium growth, and market share significantly positively affect the ROA while, on the other hand, loss ratio, liquidity, and inflation significantly negatively affect the profitability (ROA). Other factors, including size, re‐insurance dependence, leverage ratio, and GDP per capita, have no significant impact on insurance firms’ profitability (ROA). Furthermore, the variables that significantly affect the performance in terms of ROE are financial leverage and market share, holding a positive impact. And firm size shows an inverse relationship with ROE.