Abstract:
The insurance industry in Ethiopia plays a crucial role in economic growth by providing financial stability and risk management solutions. Over the past decade, the sector has expanded significantly due to a strong economy and increased insurance awareness. However, many firms struggle with profitability, necessitating an understanding of the factors influencing it. This research aims to identify these determinants by analysing data from ten of Ethiopia's 17 insurance companies between 2013 and 2023. Using a quantitative approach and multiple regression analysis, the study examines how operational and financial factors relate to profitability, measured by return on assets (ROA).The conclusion of the result shown that factors such as company age, size, leverage, liquidity, market share, and capital adequacy significantly impact ROA, while inflation negatively affects profitability. Older firms benefit from a strong reputation, and larger companies gain from economies of scale. Effective leverage and high liquidity are essential for risk management and fulfilling claims, respectively. Sufficient capital is necessary for absorbing losses and meeting regulations. The study result that 83.78% of profitability variations can be explained by these factors. It fills a gap in existing literature by focusing on the Ethiopian insurance sector and emphasizes the need for strategies to mitigate inflation's impact. Stakeholders are encouraged to enhance capital adequacy, improve operational efficiency, invest in technology, diversify products, and focus on employee training to strengthen the insurance market in Ethiopia.
