NIGERIAN INSURANCE INDUSTRY PROFITABILITY: RISK-ADJUSTED RETURNS APPROACH
NIGERIAN INSURANCE INDUSTRY PROFITABILITY: RISK-ADJUSTED RETURNS APPROACH

Summary/Abstract: This study examines the impact of underwriting and operational risk factors on the Adjusted Risk-Adjusted Return on Capital (RAROC) of listed Nigerian insurance companies in Nigeria. Using a panel dataset of 20 insurance companies for the period 2011 to 2022, the study analyzes the relationships between key underwriting and operational risk variables, specifically Claims Ratio, Expense Ratio, Asset-Liability Ratio, Leverage, and Total Premiums Earned and profitability, as measured by Adjusted RAROC. The study employs static regression models, along with Granger causality tests, to assess the effects of these factors on firm profitability. The results indicate weak correlations but significant variation in the influence of selected risk factors on Adjusted RAROC. Specifically, the Leverage and Total Premiums Earned variables exhibit weak but significant influence on profitability, while other factors, including the Claims Ratio and Asset-Liability Ratio, show no significant relationship. The Granger causality tests further suggest that the Combine Ratio is the only variable with predictive power for Adjusted RAROC. Based on these findings, the study recommends that Nigerian insurance firms should focus on improving operational efficiency, optimizing capital structures, and diversifying premium portfolios to enhance profitability. Additionally, future research should explore broader risk factors and employ more advanced econometric models to gain a deeper understanding of the complex relationships between underwriting risk and firm performance.

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