Factors Determining Profitability of the Insurance Industry of Bangladesh

Abstract

Insurance is a form of risk management, used to hedge against the risk of a contingent loss. It involves the transfer of the risk of potential loss from one entity to another, in exchange for a risk premium. Insurance sector plays an important role in service based economy of both developed and developing markets. The purpose of this research is to analyze the determinants that serve as significant predictors of non-life insurance firms’ profitability in Bangladesh. It analyzes panel data of eight different insurance companies—selected using convenience sampling method from the years 2004-2014 to assess whether any significant relationship exists between Profitability (ROA), and certain independent variables- Underwriting Risk, Expense Ratio, Solvency Margin, Premium Growth, Asset Growth, and Company Size using an Ordinary least squares (OLS) regression model. This paper found significant inverse relationship between Underwriting Risk, and Size, with Profitability (ROA). There is also a significant positive relationship between Expense Ratio, Solvency Margin, and Growth, with the Profitability (ROA). This study will help financial managers to understand which internal factors to focus on, in order to achieve greater profitability, thus maximizing the market value of the respective insurance company.