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Empirical Analysis of Reinsurance Dependence on the Profitability of General Insurance Business in Nigeria

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  • Olufemi Adebowale Abass

Abstract

Reinsurance arrangement serves as a capital management tool often used by an insurer to mitigate against catastrophic loss. Despite its importance among insurance companies, scholars from recent schools of thought have queried its use. They argue that reinsurance may be costly, and on the long run affect insurers’ financial performance. Hence, this study investigated the influence of reinsurance dependence on the profitability of general insurance companies in Nigeria. The study employed descriptive research design. A census of forty one (41) general insurance operating in Nigeria from 2006 to 2015 we used for the study. The study used Return on Assets (ROA) and Return on Assets (ROE) as proxies of profitability while Ratio of Ceded Reinsurance (RCR) and Reinsurance Dependence Ceded Premium (RDCP) were used as indicators of reinsurance dependence. The study adopted regression analysis using logarithmic transformation of model. The finding established that reinsurance dependence variables jointly influence the profitability of general insurance companies in Nigeria, though; RCR had no significant influence on profitability. Therefore, purchase reinsurance does not affect profitability but over reliance (dependence) over a period of time may be deduced to low profitability. This study recommended that general insurance companies in Nigeria should continually increase their capital base. This may translate to increase in financial capacity and on the long run depend less of reinsurance protection.

Suggested Citation

  • Olufemi Adebowale Abass, 2019. "Empirical Analysis of Reinsurance Dependence on the Profitability of General Insurance Business in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(4), pages 36-43, December.
    • Handle: RePEc:khe:scajes:v:5:y:2019:i:4:p:36-43
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    References listed on IDEAS

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    More about this item

    Keywords

    Reinsurance; reinsurance dependence; profitability; general insurance business;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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