Determinants Of Insurance Companies In Profitability In Ambo District West Shewa, Ethiopia

Abstract

Insurance involves transferring risk from the insured party to the insurer through the payment of premiums. It plays a crucial role in driving economic growth and providing financial security to individuals and businesses against both monetary and non-monetary losses arising from unforeseen events. The insurance sector in Ethiopian general and in Ambo west shewa, in specific, has been relatively underdeveloped, leading to challenges such as limited profitability and competitiveness on a global scale. Consequently, this research delved into exploring the factors influencing the profitability of insurance companies in Ambo west shewa, including independent variables such as size, liquidity, leverage, inflation, market share, age, capital adequacy, and premium growth. The study utilized descriptive statistics, correlation analysis, and linear regression techniques on Data collected over time from the same set of entities to analyse the effect of these factors on the profitability of selected insurance companies in Ambo west shewa.The researcher utilized secondary data sourced from audited annual reports, including balance sheets and income statements, of selected insurance companies operating in the Ambo west shewa. The study focused on three insurance companies in the Ambo west shewa from 2014 to 2023. In assessing the financial performance and profitability of insurance companies, Return on Assets (ROA) was employed as the dependent variable, while liquidity, premium growth, age, inflation, size, capital adequacy, market share, and leverage were considered as independent variables. The study revealed that liquidity, premium growth, age, inflation, size, and capital adequacy significantly influenced the profitability of insurers found in the study areaover the study period. Conversely, leverage and market share were found to have an insignificant impact on the profitability of the selected insurers during the study period. Consequently, the study recommends that the insurance companies should prioritize these factors to address profitability challenges effectively