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Financial Soundness of General Insurance Industry in Sri Lanka: A CARAMELS Approach

In: Digital Transformation, Strategic Resilience, Cyber Security and Risk Management

Author

Listed:
  • Vithyalani Muthusamy
  • Narayanage Jayantha Dewasiri
  • K. M. Rajeewa Chanaka Lankanatha
  • Kiran Sood
  • Simon Grima

Abstract

The study explores the impact of the general insurance industry’s financial soundness on Sri Lanka’s financial performance by using the CARAMELS approach for seven years (2011–2019) and using secondary data. The study utilised panel data regression analysis. Return on Asset was used as the proxy of financial performance while the 10 dimensions were employed. The best-fitted model is the fixed effect model (FEM), which indicates capital adequacy ratio (CAR) and profitability ratio has a positive impact and that the retention ratio (RR), claims ratio, and expenses ratio harm financial performance in the general insurance sector. The study concluded that capital adequacy, earnings and profitability, reinsurance, and actuaries are important predictors of financial performance for general insurers. The findings help the regulator and general insurers set better performance targets and enable insurance company managers to allocate capital more efficiently.

Suggested Citation

  • Vithyalani Muthusamy & Narayanage Jayantha Dewasiri & K. M. Rajeewa Chanaka Lankanatha & Kiran Sood & Simon Grima, 2023. "Financial Soundness of General Insurance Industry in Sri Lanka: A CARAMELS Approach," Contemporary Studies in Economic and Financial Analysis, in: Digital Transformation, Strategic Resilience, Cyber Security and Risk Management, volume 111, pages 231-242, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:csefzz:s1569-37592023000111a016
    DOI: 10.1108/S1569-37592023000111A016
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