THE EFFECTS OF FINANCIAL RISK ON THE PERFORMANCE OF INSURANCE COMPANIES IN ETHIOPIA

Abstract

The study focused the analysis of the effects of financial risk on the performance of selected insurance company in Ethiopia. Financial risks are an important factor which the insurance company must attend to achieve its financial performance. From this perspective effects of financial risk becomes one of the most important to be used on insurance company in order to get higher returns. Therefore, this study attempted to ascertain the relationship between effects of financial risk and performance of selected insurance companies in order to achieve this objective, the study used explanatory research design, quantitative research approach and panel data covering 14 years (2002-2015).The study used panel data techniques spastically Hausman random effect model on the regression analysis and used E-view 9 software. The study used dependent variable, return on asset (ROA), and five independent variables such as credit risk solvency risk, liquidity risk, technical provisional risk and underwriting risk. The results of Hausman random effect regression model indicated that technical provisional risk, underwriting risk, liquidity risk and credit risks had negative and significance impact on the ROA ( performance of Ethiopia insurance corporation, Africa insurance, Awash insurance, Nice insurance, Nayala insurance and Niel insurance companies). The study led to the conclusion technical provision risk, underweighting risk, liquidity risk and credit risk are the factors for the financial performance of the above selected insurance companies. On the basis findings, the study recommends that the insurance companies needs of attention for listed risks