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The Determinants of the Profitability of Micro-Life Insurers in Nigeria

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  • Olajumoke Olaosebikan

    (School of Management, University of Bath, Claverton Down, Bath BA2 7AY, U.K.)

Abstract

Drawing a framework from the financial economics literature and utilising a dynamic panel data design covering 2004–2009, this study examines the profitability of micro-life insurers in Nigeria. The results indicate that the profitability of micro-life insurers is not influenced by factors such as the ownership structure, leverage and size of firms. However, profitability is found to be negatively related to the level of reinsurance suggesting that reinsurance in the micro-life insurance sector of the Nigerian market may be highly priced to reflect the increased risk associated with insuring the lives of low income groups. The link between profitability and the degree to which micro-life insurers have a diversified range of products suggests that multi-product firms are better able to reduce the cost of risk in-house through “natural diversification” as well as realise benefits from economies of scale and scope. Furthermore, the profitability of micro-life insurers operating in Nigeria is found to be positively influenced by the level of interest rates in the economy. This implies that the investment function and macroeconomic factors could be important in assessing the future financial performance of micro-insurance firms in developing countries. Finally, the results of the study could have potentially important commercial and public policy implications.

Suggested Citation

  • Olajumoke Olaosebikan, 2013. "The Determinants of the Profitability of Micro-Life Insurers in Nigeria," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(1), pages 140-159, January.
    • Handle: RePEc:pal:gpprii:v:38:y:2013:i:1:p:140-159
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    Cited by:

    1. Kalyani Mulchandani & CS Manish Sitlani & Ketan Mulchandani, 2016. "The determinants of financial performance in life insurance sector in India," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 6(10), pages 261-269, October.
    2. Isaac Akomea-Frimpong & Caleb Boadi & Roger Owusu-Boafo, 2021. "Determinants and challenges of supplying microlife insurance in Ghana," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 331-357, July.
    3. Subrato Banerjee & Basri Savitha, 2021. "Competition reduces profitability: the case of the Indian life microinsurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 383-398, July.
    4. Tomislava Pavić Kramarić & Mirjana Pejić Bach & Ksenija Dumičić & Berislav Žmuk & Maja Mihelja Žaja, 2018. "Exploratory study of insurance companies in selected post-transition countries: non-hierarchical cluster analysis," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 26(3), pages 783-807, September.

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