Firm-Level Characteristics and Profitability of Nigeria’s Insurance Sector: An Empirical Analysis.

Abstract

This study investigates the effect of firm-level characteristics on the profitability of the insurance sector in Nigeria. The study specifically examines the extent of the effects of capital, premium size, claims expenses, reinsurance, liquidity and management efficiency, on insurance firms’ profitability in Nigeria, using return on assets (ROA) and return on equity (ROE) as profitability proxies. The study relied on secondary data obtained from the annual reports of 20 listed insurance firms in Nigeria (which formed the panel for the study), from 2015 to 2021. The Generalised Method of Moments (GMM) panel regression technique was employed in analysing the data, which revealed that capital, premium size, claims payment and firm size were the main firm-level characteristics that strongly influence the profitability of the insurance sector in Nigeria. Thus, firms with greater operating efficiency are likely to enjoy more profitability in Nigeria. The study therefore advocates that the National Insurance commission (NAICOM) should review the paid-up capital of insurance firms, as the stunted profit of the sector may be attributable to capital inadequacy. More so, the management of insurance firms should take critical steps to reduce their operating costs, since the level of profitability of the industry is inconsistent with the premium earnings.