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Determinants driving Takaful and cooperative insurance financial performance in Saudi Arabia

Determinants driving Takaful and cooperative insurance financial performance in Saudi Arabia This paper aims to examine the effect of insurance specific characteristics, corporate governance and risk reporting attributes, Shari’ah board and inflation rate on the financial performance of Takaful and cooperative insurance industries.Design/methodology/approachBased on a dynamic panel generalized method of moment’s system estimation, the author investigates determinants of financial performance as measured by the net premium written, earning ratio and profit margin.FindingsCompany size, insurance penetration, risk reporting and board size significantly explain the financial performance of both types of insurance companies. The effect of Shari’ah board and capital intensity on the financial performance of Takaful insurance is overall positive. The non-executive directors may negatively affect the financial performance. Additionally, positive relationship was also found between inflation rate and financial performance of cooperative insurance.Research limitations/implicationsThe typical shortcomings of a content analysis-based research apply to the measurement of operational risk reporting variable. Some modifications need to be made if it were to be used for exploring the financial performance of other Islamic financial institutions. The structural model used in this paper can be used as a generic platform to develop a specific framework for other types of organizations.Practical implicationsSome suggestions may be functional for Islamic insurance regulatory authorities to intensify the transparency, and for insurers to channel an additional source of investment funding toward economic sectors.Originality/valueThe present study seeks to fill a demanding gap in the literature by providing new empirical evidence on the factors that influence the financial performance of the Islamic insurance sector. Moreover, the paper tries to distinguish and identify the determinants of the performance for Takaful and cooperative insurance companies operating in Saudi Arabia. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting & Organizational Change Emerald Publishing

Determinants driving Takaful and cooperative insurance financial performance in Saudi Arabia

Hemrit, Wael
Journal of Accounting & Organizational Change , Volume 16 (1): 21 – Apr 20, 2020
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21 pages

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1832-5912
DOI
10.1108/jaoc-03-2019-0039
Publisher site
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Abstract

This paper aims to examine the effect of insurance specific characteristics, corporate governance and risk reporting attributes, Shari’ah board and inflation rate on the financial performance of Takaful and cooperative insurance industries.Design/methodology/approachBased on a dynamic panel generalized method of moment’s system estimation, the author investigates determinants of financial performance as measured by the net premium written, earning ratio and profit margin.FindingsCompany size, insurance penetration, risk reporting and board size significantly explain the financial performance of both types of insurance companies. The effect of Shari’ah board and capital intensity on the financial performance of Takaful insurance is overall positive. The non-executive directors may negatively affect the financial performance. Additionally, positive relationship was also found between inflation rate and financial performance of cooperative insurance.Research limitations/implicationsThe typical shortcomings of a content analysis-based research apply to the measurement of operational risk reporting variable. Some modifications need to be made if it were to be used for exploring the financial performance of other Islamic financial institutions. The structural model used in this paper can be used as a generic platform to develop a specific framework for other types of organizations.Practical implicationsSome suggestions may be functional for Islamic insurance regulatory authorities to intensify the transparency, and for insurers to channel an additional source of investment funding toward economic sectors.Originality/valueThe present study seeks to fill a demanding gap in the literature by providing new empirical evidence on the factors that influence the financial performance of the Islamic insurance sector. Moreover, the paper tries to distinguish and identify the determinants of the performance for Takaful and cooperative insurance companies operating in Saudi Arabia.

Journal

Journal of Accounting & Organizational Change – Emerald Publishing

Published: Apr 20, 2020

Keywords: Corporate governance; Saudi Arabia; Financial performance; Risk reporting; Panel dynamic GMM; Takaful and cooperative; Takaful; Cooperative insurance; Dynamic panel

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