Insurance Sector Profitability: During & Post Economic Crisis 2008

Abstract

The purpose of this study is to examine the determinants of profitability of Life Insurance and Non-Life Insurance companies under the tenure of pre, during and post financial crisis. The stimulus of this study was the absence of research on this topic. For the purpose, the author has selected fourteen Life Insurance and Five Non-Life Insurance companies which were in operation during three tenures. The author has taken the Return on Assets as the measurement of profitability and dependent variable whereas two macro-economic variables i.e. Gross Domestic Product and Inflation and three industry-specific variables i.e. Liquidity, Leverage and Size as independent variables. Panel regression results indicated that macro-economic variables had insignificant impact on profitability of Life Insurance and Non-Life Insurance companies under all three tenures. In case of financial or industry specific variables, both types of insurance companies had negative impact on the profitability under pre economic crisis tenure. However, liquidity has significantly positive impact on profitability of Life Insurance Companies. During financial crisis tenure, both insurance sub sectors i.e. Life insurance companies and Non-Life Insurance companies’ size have significantly positive impact on profitability. Life insurance companies’ leverage had significantly negative and liquidity had significantly positive impact on profitability during financial crisis tenure. In post crisis time period, once again Non-Life insurance companies were inefficient however they enjoyed tax shield by increase in profitability with increase in leverage significantly. On the other hand, Life insurance companies had inverse impact of leverage on their profitability but they managed their liquidity much better than previous two tenures and generate more profit. The findings will be helpful for Insurance sector to develop their policies accordingly.