The general objective of the study is to find out the determinants of the profitability of insura... more The general objective of the study is to find out the determinants of the profitability of insurance firms in Ghana. Secondary data on financial reports were collected from sixteen insurance firms in Ghana for the period 2005 to 2010.The study was quantitative in nature. It adopted the longitudinal time dimension, specifically, the panel method and ordinary least square regression. The study discovered that, apart from tangibility which has a negative relationship, there is a positive relationship between leverage, liquidity and profitability of insurance firms in Ghana. It was also concluded that, the profitability model adopted has been explained in respect to all the independent variables and that the degree of error is less than 20%. Finally, it is suggested that the explanatory variables used in this study should be regressed on Return on Equity to find their extent of relationship on profitability. 1.0 introduction The financial system comprises of financial institutions, financial instruments and financial markets that provide an effective payment, credit system and risk transfer and thereby facilitate channelizing of funds from savers to the investors of the economy. According to Frederic S. Mishkin & Stanley G. Eakins (2009), financial markets and institutions not only affect your everyday life but also involve huge flows of funds – trillions of dollars-throughout our economy, which in turn affect business profits, the production of goods and services, and even the economic well-being of countries other than the United States. Indeed, a well-functioning financial markets and institutions are one of the most important key factors in producing high economic growth, and poorly performing financial markets and institutions are one of the reasons that many countries in the world remain desperately poor. Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the company's bottom line. Profitability measures are important to company managers and owners alike. If a small business has outside investors who have put their own money into the company, the primary owner certainly has to show profitability to those equity investors. There has been a growing number of studies recently that test for measures and determinants of firm profitability. Financial industry's profitability has attracted scholarly attention in recent studies due to its importance in performance measurement. However, in the context of the Insurance sector particularly in developing countries or emerging markets like Ghana it has received little attention. According to a study conducted by Ahmed et al (2011) on the determinants of performance, it indicated that size, risk and leverage are important determinants of performance of life insurance companies of Pakistan. According to their study Return on Asset (ROA) has statistically insignificant relationship with growth, profitability, age and liquidity. According to Wright (1992), due to the unique accounting system used by life insurance companies, profitability of the industry has always been difficult to measure as compared with other financial institutions or corporations. For insurers, profitability is affected by a host of factors including actual mortality experience, investment earning, capital gains or losses, the scale of policyholder dividends, and federal and state taxes. Kasturi (2006) argued that the performance of insurance company in financial terms is normally expressed in net premium earned, profitability from underwriting activities, annual turnover, return on investment and return on
The general objective of the study is to find out the determinants of the profitability of insura... more The general objective of the study is to find out the determinants of the profitability of insurance firms in Ghana. Secondary data on financial reports were collected from sixteen insurance firms in Ghana for the period 2005 to 2010.The study was quantitative in nature. It adopted the longitudinal time dimension, specifically, the panel method and ordinary least square regression. The study discovered that, apart from tangibility which has a negative relationship, there is a positive relationship between leverage, liquidity and profitability of insurance firms in Ghana. It was also concluded that, the profitability model adopted has been explained in respect to all the independent variables and that the degree of error is less than 20%. Finally, it is suggested that the explanatory variables used in this study should be regressed on Return on Equity to find their extent of relationship on profitability. 1.0 introduction The financial system comprises of financial institutions, financial instruments and financial markets that provide an effective payment, credit system and risk transfer and thereby facilitate channelizing of funds from savers to the investors of the economy. According to Frederic S. Mishkin & Stanley G. Eakins (2009), financial markets and institutions not only affect your everyday life but also involve huge flows of funds – trillions of dollars-throughout our economy, which in turn affect business profits, the production of goods and services, and even the economic well-being of countries other than the United States. Indeed, a well-functioning financial markets and institutions are one of the most important key factors in producing high economic growth, and poorly performing financial markets and institutions are one of the reasons that many countries in the world remain desperately poor. Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the company's bottom line. Profitability measures are important to company managers and owners alike. If a small business has outside investors who have put their own money into the company, the primary owner certainly has to show profitability to those equity investors. There has been a growing number of studies recently that test for measures and determinants of firm profitability. Financial industry's profitability has attracted scholarly attention in recent studies due to its importance in performance measurement. However, in the context of the Insurance sector particularly in developing countries or emerging markets like Ghana it has received little attention. According to a study conducted by Ahmed et al (2011) on the determinants of performance, it indicated that size, risk and leverage are important determinants of performance of life insurance companies of Pakistan. According to their study Return on Asset (ROA) has statistically insignificant relationship with growth, profitability, age and liquidity. According to Wright (1992), due to the unique accounting system used by life insurance companies, profitability of the industry has always been difficult to measure as compared with other financial institutions or corporations. For insurers, profitability is affected by a host of factors including actual mortality experience, investment earning, capital gains or losses, the scale of policyholder dividends, and federal and state taxes. Kasturi (2006) argued that the performance of insurance company in financial terms is normally expressed in net premium earned, profitability from underwriting activities, annual turnover, return on investment and return on
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