DETERMINANTS OF FINANCIAL PERFORMANCE OF INSURANCE FIRMS IN NIGERIA

ABSTRACT

The study empirically investigates the determinants of financial performance of insurance firms in Nigeria for a period of 9 years (2009 to 2017). The dependent variable (financial performance) was proxied by return on asset (ROA); while the independent variables include asset tangibility, leverage, equity capital, premium income and profit after tax (PAT). The panel data econometric analysis was employed in the empirical analysis of the data. The results from the analysis generally showed that tangible assets have significant negative impact on performance, profit after tax has significant positive impact on financial performance. Leverage, equity and premium income did not have any significant impact on insurance firms’ financial performance in Nigeria within the period of study. The study recommends that; insurance managers should judiciously apply the company’s premium income on the acquisition of the right tangible assets that are relevant to insurance business. Since insurance firms’ holding more tangible assets are less prone to asymmetric information problems and reduction of agency costs conflicts, more emphasis and focus should be placed by management of insurance firms on investing in tangible assets such as real estates or low risk securities that are not subject to high level of speculation. This becomes necessary especially as insurance firms are in the business of hedging against the risk of loss through indemnification when the loss occurs.