MACRO ECONOMY AND PROFITABILITY OF INSURANCE COMPANIES: A POST CRISIS SCENARIO IN PAKISTAN

Ijaz Hussain

Abstract


This paper uses firm level data of 39 companies of insurance industry of Pakistan for the period 2006-11. The findings of this study suggest that based on overall regression results, macroeconomic environment, equity market conditions and inflation have a positive and significant impact on profitability of insurance companies in Pakistan. This is also true for non-life insurance companies. However, significance and signs of the coefficients of firm-specific characteristics and macroeconomic variables vary across life, non-life and takaful insurance companies on account of varying nature of their clientele and coverage of insurance policies. Corporate managers of life insurance companies should especially focus on exploring opportunities for growth and diversification and management of underwriting risk and investment portfolios in view of changing equity market conditions. Financial strength, firm size and financial leverage cannot be ignored in profitability management of life insurance companies. The management of non-life insurance companies should also keep in view the macroeconomic environment, equity market conditions, inflation in addition to firm specific characteristics including financial leverage, relative firm size, financial soundness, growth opportunities, underwriting risk and diversification in particular to manage profitability. The takaful business managers should especially focus on underwriting risk, diversification and working capital management to manage their return on assets

Keywords


Life Insurance, non-life, takaful, performance,profitability

Full Text:

PDF

References


References

Adams, M., and Buckle, M., (2003), The determinants of corporate financial performance in the Bermuda insurance market, Applied Financial Economics, Routledge, 13:133-143.

Agiobenebo,T.J and Ezirim C. B. 2002 “Impact of Financial Intermediation on the Profitability of Insurance Companies in Nigeria”. First Bank of Nigeria Quarterly Review 2(1): 20- 31.

Ahmed, N., Ahmed, Z. and Usman, A. 2011. Determinants of Performance: A Case of Life Insurance Sector of Pakistan. International Research Journal of Finance and Economics 61: 123-128.

Ali, S. (2011). Working capital management and the profitability of the manufacturing sector: A case study of Pakistan’s textile industry. The Lahore Journal of Economics, 16 (2): 141– 178.

Amjed, S. (2007). The impact of financial structure on profitability: Study of Pakistan’s textile sector. Poster session presented at the Management of International Business and Economic Systems Conference, Larissa, Greece. Retrieved from (http:/ /mibes.teilar.gr/proceedings/2007/poster/Amjed.pdf).

Ammar, A., Hanna, A. S., Nordheim, E. V., and Russell, J. S. 2003. Indicator variables model of firm’s size-profitability relationship of electrical contractors using financial and economic data. Journal of Construction Engineering and Management, 129(2): 192–197.

Ayele, A. G. (2012). Factors Affecting Profitability of Insurance Companies in Ethiopia: Panel Evidence (Doctoral dissertation, Addis Ababa University). http://etd.aau.edu.et/ dspace/bitstream/123456789/4326/1/(cited, Dec., 23, 2014)

Baltagi, B. H. (2008)1. Econometric Analysis of Panel Data. 4th Edition. John Wiley & Son. p.1.

Beck, T., & Webb, I. (2003). Economic, demographic, and institutional determinants of life insurance consumption across countries. The World Bank Economic Review, 17(1), 51-88. http://www.tilburguniversity.edu/webwijs/files/center/beck/ publications/other/consumption.pdf (Cited, Dec. 24, 2014)

Boadi, E. K., Antwi, S., & Lartey, V. C. (2013). Determinants of Profitability of Insurance Firms in Ghana. International Journal of Business and Social Research, 3(3), 43-50. http:/ /www.thejournalofbusiness.org/index.php/site/article/view/ 231/231 (cited, Dec. 24, 2014)

Charumathi B. 2012. On the Determinants of Profitability of Indian Life Insurers – An Empirical Study. In Proceedings of the World Congress on Engineering 2012 Vol I WCE 2012, July 4 - 6, 2012, London, U.K. http://www.iaeng.org/publication/ WCE2012/WCE2012_pp505-510.pdf [cited, January 05, 2013]

Chhapra, I. U., & Naqvi, N. A. (2010). Relationship between efficiency level of working capital management and profitability of firms in the textile sector of Pakistan. http://mpra.ub.uni- muenchen.de/51057/1/MPRA_paper_51057.pdf (Cited, January 05, 2013)

Chen, R., & Wong, K. A. (2004). The determinants of financial health of Asian insurance companies. Journal of Risk and Insurance, 71(3), 469-499. http://onlinelibrary.wiley.com/doi/ 10.1111/j.0022-4367.2004.00099.x/pdf (cited, Dec., 23, 2014)

Æurak, M., Pepur, S., & Poposki, K. (2011). Firm and economic factors and performance: Croatian composite insurers. The Business Review Cambridge,19(1), 136-142. http://bib.irb.hr/prikazi- rad?lang=en&rad=553926 (Cited, Dec. 24, 2014)

Financial Statements Analysis of Financial Sector (2006-201). Statistics and DWH Department. State Bank of Pakistan, Karachi.

Greene, W. H., & Segal, D. (2004). Profitability and efficiency in the US life insurance industry. Journal of Productivity Analysis, 21(3), 229-247. http://link.springer.com/article/ 10.1023/B:PROD.0000022092.70204.fa#page-2 (cited, Dec., 24, 2014)

Hand Book of Statistics on Pakistan Economy (2011). Statistics and DWH Department. State Bank of Pakistan, Karachi.

Hussain, I. 2012. The Consequences of Easy Credit Policy, High Gearing, and Firms’ Profitability in Pakistan’s Textile Sector: A Panel Data Analysis. The Lahore Journal of Economics 17(1): 33–44

Hussain, I. 2013. Banking Industry Concentration and Net Interest Margins (NIMs) in Pakistan, Journal of Business Economics and Management, DOI:10.3846/16111699.2012.732105

Ikonic, D., Arsic N. and Miloševic, S. 2011. Growth Potential and Profitability Analysis of Insurance Companies in the Republic of Serbia, Chinese Business Review 10 (11): 998-1008.

Kozak, S. (2011). Determinants of profitability of non-life insurance companies in Poland during integration with the European financial system. Electronic Journal of Polish Agricultural Universities, 14(1). http://www.ejpau.media.pl/articles/ volume14/issue1/art-01.pdf (cited, Dec., 23, 2014)

Malik, H. 2011. Determinants of Insurance Companies Profitability: An Analysis of Insurance Sector Of Pakistan. Academic Research International 1(3): 314-320. http:// www.savap.org.pk/journals/ARInt./Vol.1(3)/2011(1.3-32).pdf [cited, January 05, 2013]

Michael K. McShane, Larry A. Cox and Richard J. Butler, (2010), Regulatory competition and forbearance: Evidence from the life insurance industry, Journal of Banking & Finance, 34: 522-532.

Shiu, Y. (2004). Determinants of United Kingdom general insurance company performance. British Actuarial Journal, 10(05), 1079-1110. doi:10.1017/S1357321700002968. (Cited, Dec. 24, 2014)

Treacy, M. (1980). Profitability patterns and firm size. Working Paper No. 1109-80. Cambridge, MA: Massachusetts Institute of Technology, Alfred P. Sloan School of Management.

Whittington, G. (1980). The profitability and size of United Kingdom companies, 1960–74. Journal of Industrial Economics, 28(4), 335–352.

Wright, K. M. (1992). The life insurance industry in the United States: an analysis of economic and regulatory issues (Vol. 857). World Bank Publications.

Zhu, S. (2013). A structural equation modeling analysis on solvency, operation and profitability of life insurers. http:// repositories.lib.utexas.edu/bitstream/handle/2152/22568/ ZHU-MASTERSREPORT-2013.pdf?sequence=1 (Cited, Dec. 24, 2014)




DOI: http://dx.doi.org/10.22555/pbr.v17i2.103

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.