IDEAS home Printed from https://ideas.repec.org/a/spr/joiaen/v14y2025i1d10.1186_s13731-024-00461-w.html
   My bibliography  Save this article

Re-examining the microeconomic and macroeconomic determinants of nonlife insurers profitability in South Africa: insights from linear and threshold analysis

Author

Listed:
  • Sylvester Senyo Horvey

    (University of the Witwatersrand)

  • Jones Odei-Mensah

    (University of the Witwatersrand)

Abstract

This study contributes significantly to the literature by exploring the linearity, nonlinearity and threshold levels necessary for the micro- and macrodeterminants to stimulate insurance profitability (thus, return on assets and return on total premiums). The study employs the system generalized method of moments and the dynamic panel threshold techniques based on 71 nonlife companies in South Africa between 2013 and 2019. The findings from the linear analysis show that solvency, investment yield, premium growth, gross domestic products and urbanization are important channels for nonlife insurance profitability. Contrarily, inflation and unemployment present adverse effects. Furthermore, the results from the threshold analysis reveal nonlinearities in the relationship, which nonlife insurers must consider to achieve higher profitability. The findings highlight that solvency, insurance size and investment income stimulate profitability beyond their threshold levels, but premium growth and reinsurance reveal otherwise. The results suggest that excessive premium growth and over-reliance on reinsurance can hurt the profitability of nonlife insurers. Regarding the macroeconomic factors, the study finds that economic growth enhances profitability when it surpasses a certain threshold, while inflation hinders profitability when it exceeds a specific threshold. The study suggests that a stable economic environment is vital to the growth of the nonlife industry. In addition, insurers must employ sound underwriting and risk management practices to avoid financial distress.

Suggested Citation

  • Sylvester Senyo Horvey & Jones Odei-Mensah, 2025. "Re-examining the microeconomic and macroeconomic determinants of nonlife insurers profitability in South Africa: insights from linear and threshold analysis," Journal of Innovation and Entrepreneurship, Springer, vol. 14(1), pages 1-29, December.
    • Handle: RePEc:spr:joiaen:v:14:y:2025:i:1:d:10.1186_s13731-024-00461-w
    DOI: 10.1186/s13731-024-00461-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s13731-024-00461-w
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1186/s13731-024-00461-w?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shijun Cao & Sung Jin Kang, 2020. "Personal Remittances and Financial Development for Economic Growth in Economic Transition Countries," International Economic Journal, Taylor & Francis Journals, vol. 34(3), pages 472-492, July.
    2. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    3. Killins, Robert N., 2020. "Firm-specific, industry-specific and macroeconomic factors of life insurers’ profitability: Evidence from Canada," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    4. Chen-Ying Lee, 2014. "The Effects of Firm Specific Factors and Macroeconomics on Profitability of Property-Liability Insurance Industry in Taiwan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(5), pages 681-691, May.
    5. Dorothee Crayen & Christa Hainz & Christiane St�h de Mart�nez, 2013. "Remittances, Banking Status and the Usage of Insurance Schemes," Journal of Development Studies, Taylor & Francis Journals, vol. 49(6), pages 861-875, June.
    6. Myung Hwan Seo & Sueyoul Kim & Young-Joo Kim, 2019. "Estimation of dynamic panel threshold model using Stata," Stata Journal, StataCorp LLC, vol. 19(3), pages 685-697, September.
    7. Joseph Oscar Akotey & Frank G. Sackey & Lordina Amoah & Richard Frimpong Manso, 2013. "The financial performance of life insurance companies in Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 14(3), pages 286-302, May.
    8. Chen-Ying Lee, 2014. "The Effects of Firm Specific Factors and Macroeconomics on Profitability of Property-Liability Insurance Industry in Taiwan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(5), pages 681-691.
    9. Seo, Myung Hwan & Shin, Yongcheol, 2016. "Dynamic panels with threshold effect and endogeneity," Journal of Econometrics, Elsevier, vol. 195(2), pages 169-186.
    10. Tomislava Pavic Kramaric & Marko Miletic & Ivan Pavic, 2017. "Profitability Determinants of Insurance Markets in Selected Central and Eastern European Countries," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 6(2), pages 100-123, November.
    11. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    12. Emine Öner Kaya, 2015. "The Effects of Firm-Specific Factors on the Profitability of Non-Life Insurance Companies in Turkey," IJFS, MDPI, vol. 3(4), pages 1-20, October.
    13. Kamanda Morara & Athenia Bongani Sibindi, 2021. "Determinants of Financial Performance of Insurance Companies: Empirical Evidence Using Kenyan Data," JRFM, MDPI, vol. 14(12), pages 1-13, November.
    14. Shiu, Y., 2004. "Determinants of United Kingdom General Insurance Company Performance," British Actuarial Journal, Cambridge University Press, vol. 10(5), pages 1079-1110, December.
    15. Eric Kofi Boadi & Samuel Antwi & Victor Curtis Lartey, 2013. "Determinants of Profitability of Insurance Firms in Ghana," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 3(3), pages 43-50, March.
    16. Segundo Camino-Mogro & Natalia Bermúdez-Barrezueta, 2019. "Determinants of profitability of life and non-life insurance companies: evidence from Ecuador," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 14(5), pages 831-872, August.
    17. Tafadzwanashe Zinyoro & Meshach Jesse Aziakpono, 2024. "Performance determinants of non-life insurance firms: a systematic review of the literature," Cogent Business & Management, Taylor & Francis Journals, vol. 11(1), pages 2345045-234, December.
    18. Byeongyong Paul Choi & Mary A. Weiss, 2005. "An Empirical Investigation of Market Structure, Efficiency, and Performance in Property‐Liability Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(4), pages 635-673, December.
    19. Stephanie Kremer & Alexander Bick & Dieter Nautz, 2013. "Inflation and growth: new evidence from a dynamic panel threshold analysis," Empirical Economics, Springer, vol. 44(2), pages 861-878, April.
    20. repec:eme:jrfpps:v:14:y:2013:i:2:p:286-302 is not listed on IDEAS
    21. Željko Vojinović & Sunčica Milutinović & Dario Sertić & Bojan Leković, 2022. "Determinants of Sustainable Profitability of the Serbian Insurance Industry: Panel Data Investigation," Sustainability, MDPI, vol. 14(9), pages 1-22, April.
    22. Batsirai Winmore Mazviona & Mbakisi Dube & Tendai Sakahuhwa, 2017. "An Analysis of Factors Affecting the Performance of Insurance Companies in Zimbabwe," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 6(1), pages 1-2.
    23. Sylvester Senyo Horvey & Jacob Ankamah & David McMillan, 2020. "Enterprise risk management and firm performance: Empirical evidence from Ghana equity market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1840102-184, January.
    24. Adam Tsega Worku & Yenefenta Wube Bayleyegne & Zenebe Berie Tafere, 2024. "Determinants of profitability of insurance companies in Ethiopia: evidence from insurance companies from 2011 to 2020 years," Journal of Innovation and Entrepreneurship, Springer, vol. 13(1), pages 1-19, December.
    25. Shiu, Yung-Ming, 2020. "How does reinsurance and derivatives usage affect financial performance? Evidence from the UK non-life insurance industry," Economic Modelling, Elsevier, vol. 88(C), pages 376-385.
    26. Joseph Oscar Akotey & Frank G. Sackey & Lordina Amoah & Richard Frimpong Manso, 2013. "The financial performance of life insurance companies in Ghana," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 14(3), pages 286-302, May.
    27. Abdul Latif Alhassan & George Kojo Addisson & Michael E. Asamoah, 2015. "Market structure, efficiency and profitability of insurance companies in Ghana," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 10(4), pages 648-669, September.
    28. Athanasoglou, Panayiotis & Delis, Manthos & Staikouras, Christos, 2006. "Determinants Of Bank Profitability In The South Eastern European Region," MPRA Paper 10274, University Library of Munich, Germany.
    29. Cristina Dorofti & Petr Jakubik, 2015. "Insurance Sector Profitability and the Macroeconomic Environment," EIOPA Financial Stability Report - Thematic Articles 4, EIOPA, Risks and Financial Stability Department.
    30. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    31. Chen-Ying Lee, 2014. "The effects of firm specific factors and macroeconomics on profitability of property-liability insurance industry in Taiwan," Journal of Business & Management (COES&RJ-JBM), , vol. 2(1), pages 221-227, January.
    32. Yllka Ahmeti & Etem Iseni, 2022. "Factors Affecting Profitability of Insurance Companies. Evidence from Kosovo," Academicus International Scientific Journal, Entrepreneurship Training Center Albania, issue 25, pages 122-142, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. KamukaKang’ombi & Dr. Charles Muwe Mungule, 2023. "Assessing Factors Affecting Financial Performance of Insurance Companies in Zambia," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(5), pages 153-166, May.
    2. Opoku, Ezekiel Kofi & Marfo-Yiadom, Edward & Gubareva, Mariya & Mendes, José Zorro, 2024. "Unveiling dynamics: Financial performance determinants in the Ghanaian insurance industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 98(C).
    3. GOCKOV, Gjorgi & KAMENJARSKA, Tanja, 2021. "Empirical Analysis Of The Factors Determining The Profitability Of Insurance Companies In The Republic Of North Macedonia," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 25(1), pages 48-64, March.
    4. Nazish Ishtiaq & Danish Ahmed Siddiqui, 2019. "Factors Affecting Financial Performance of Life Insurance Sector in Pakistan," International Journal of Social and Administrative Sciences, Asian Economic and Social Society, vol. 4(2), pages 178-199, June.
    5. Awoa, Paul Awoa & Efogo, Françoise Okah & Ondoa, Henri Atangana, 2023. "Oil dependence and entrepreneurship: Non-linear evidence," Economic Systems, Elsevier, vol. 47(1).
    6. Raad Mozib Lalon & Joy Das, 2022. "Investigating the dynamic impact of firm-specific and macroeconomic drivers on profitability of general insurance companies in Bangladesh," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(5), pages 304-313, July.
    7. Horvey, Sylvester Senyo & Odei-Mensah, Jones & Moloi, Tankiso & Bokpin, Godfred A., 2024. "Digital economy, financial development and energy transition in Africa: Exploring for synergies and nonlinearities," Applied Energy, Elsevier, vol. 376(PB).
    8. repec:ers:journl:v:xxiv:y:2021:i:2b:p:502-514 is not listed on IDEAS
    9. Li-Hua Lai & Ching-Hao Chen & Tung-Cheng Chang, 2018. "The Impact of Macroeconomic Factors on Environmental Loss Ratio: Evidence from Taiwanese Insurance Data," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(03), pages 1-13, September.
    10. Alhassan, Abdul Latif, 2023. "Financial Health of Medical Schemes in South Africa," Finance Research Letters, Elsevier, vol. 51(C).
    11. Qusai Mohammad Qasim Alabed & Fathin Faizah Said & Zulkefly Abdul Karim & Mohd Azlan Shah Zaidi & Mohammed Daher Alshammary, 2021. "Energy–Growth Nexus in the MENA Region: A Dynamic Panel Threshold Estimation," Sustainability, MDPI, vol. 13(22), pages 1-18, November.
    12. Md. Bokhtiar Hasan & SM Nahidul Islam & Abu N. M. Wahid, 2018. "The effect of macroeconomic variables on the performance of non-life insurance companies in Bangladesh," Indian Economic Review, Springer, vol. 53(1), pages 369-383, December.
    13. Woosik Gong & Myung Hwan Seo, 2022. "Bootstraps for Dynamic Panel Threshold Models," Papers 2211.04027, arXiv.org, revised Sep 2024.
    14. Chen, Chaoyi & Pinar, Mehmet & Stengos, Thanasis, 2021. "Determinants of renewable energy consumption: Importance of democratic institutions," Renewable Energy, Elsevier, vol. 179(C), pages 75-83.
    15. Yasmin Bani & Ali Abdulkadir Ali Gutale & Abdul Samad Abdul-Rahim & Syamsul Herman Mohammad Afandi, 2024. "A Threshold Effect of Financial Development on Natural Resource Rents-Sustainable Human Development Nexus: Empirical Evidence from Sub-Saharan Africa," International Journal of Energy Economics and Policy, Econjournals, vol. 14(6), pages 63-79, November.
    16. Sy-Hoa Ho & Jamel Saadaoui, 2022. "Bank credit and economic growth: A dynamic threshold panel model for ASEAN countries," International Economics, CEPII research center, issue 170, pages 115-128.
    17. Md Gyasuddin Ansari & Rudra Sensarma, 2023. "The role of liquidity in monetary policy transmission: Evidence from Indian banks," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(5), pages 439-458, November.
    18. Gao, Yanyan & Zang, Leizhen & Sun, Jun, 2018. "Does computer penetration increase farmers’ income? An empirical study from China," Telecommunications Policy, Elsevier, vol. 42(5), pages 345-360.
    19. Tomislava Pavic Kramaric & Ivan Pavic & Marko Miletic, 2019. "Does Bancassurance Affect Performance of Non-life Insurance Sector ? Case of EU Countries," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 8(2), pages 96-108, December.
    20. Aizenman, Joshua & Ho, Sy-Hoa & Huynh, Luu Duc Toan & Saadaoui, Jamel & Uddin, Gazi Salah, 2024. "Real exchange rate and international reserves in the era of financial integration," Journal of International Money and Finance, Elsevier, vol. 141(C).
    21. Gebauer, Stefan & Setzer, Ralph & Westphal, Andreas, 2017. "Corporate debt and investment: a firm analysis for stressed euro area countries," Working Paper Series 2101, European Central Bank.

    More about this item

    Keywords

    Determinants; Insurance; Linearity; Profitability; Threshold;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joiaen:v:14:y:2025:i:1:d:10.1186_s13731-024-00461-w. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.