UNDERWRITING CAPACITY AND PERFORMANCE OF QUOTED INSURANCE FIRMS IN SUB-SAHARAN AFRICAN COUNTRIES
UNDERWRITING CAPACITY AND PERFORMANCE OF QUOTED INSURANCE FIRMS IN SUB-SAHARAN AFRICAN COUNTRIES

Summary/Abstract: Risk management is a critical aspect of the performance and growth of insurance firms. This study examined the effects of the underwriting capacity of listed insurance companies on their financial performance in selected countries in the sub-Saharan African region. It is argued in the study that internally controlled factors (underwriting capacity) generate risks faced by the insurance firms. The study makes use of secondary data gathered from the annual audited financial statements of the studied insurance organizations. For the period of 2010 to 2019, data from eight (8) chosen sub-Saharan African nations and forty-five (45) insurance companies were used. With the help of dependent variables (ROA, ROE, and Tobin's Q), explanatory variables (shareholders fund, underwriting profit, reserves, earning asset ratio, gross premium, and the ratio of ceded reinsurance), and moderating variables (firm size, economic growth, and inflation rate), the data were analyzed using the system GMM estimation technique. The results from the study reveal that the pattern of effects of underwriting capacity variables differ in terms of the measurement used for performance indicator. In particular, the study found that shareholders' funds, underwriting profit, reserves, earning asset ratio and gross premium written exert significant effects on the performance of the insurance firms, although the effects vary depending on whether ROA, ROE, or Tobin's Q is used as a performance indicator. Underwriting profit was found to have unambiguous significant and positive effects on all the performance indicators while reserves had significant negative effects on all the performance indicators of insurance firms. The ratio of ceded reinsurance was however found to have no significant impact on the performance of listed insurance firms in the selected Sub-Saharan African countries. Optimal risk and shareholder's fund management strategies are therefore recommended in the study.

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