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Determinants of profitability of life and non-life insurance companies: evidence from Ecuador

Determinants of profitability of life and non-life insurance companies: evidence from Ecuador The purpose of this paper is is to identify the main determinants of insurance profitability on life and non-life segments to obtain which variables affect in each market of the Ecuadorian insurance sector.Design/methodology/approachThe authors use a large panel data set with financial information from 2001 to 2017 and estimate the determinants through a panel corrected standard errors regression.FindingsThe authors found that net premiums, technical reserves, capital ratio and score efficiency are micro-determinants in the life insurance sector, whereas in the non-life sector, the micro-determinants include also claim level and liquidity ratio; moreover, the authors found that HHI is a determinant of profitability only in the life insurance. Among the macro determinants set, the authors found that the interest rate has also a significant impact both in the life and non-life insurance.Originality/valueThe authors analyze a dollarized emerging country, which is the first time in this kind of studies. The authors also include the structure-conduct-performance and relative market power paradigm as well as the ES hypothesis, calculated through the data envelopment analysis, as determinants of insurance profitability. Finally, this is the first research to examine the determinants of profitability in Latin American and Caribbean insurers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Emerging Markets Emerald Publishing

Determinants of profitability of life and non-life insurance companies: evidence from Ecuador

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1746-8809
DOI
10.1108/ijoem-07-2018-0371
Publisher site
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Abstract

The purpose of this paper is is to identify the main determinants of insurance profitability on life and non-life segments to obtain which variables affect in each market of the Ecuadorian insurance sector.Design/methodology/approachThe authors use a large panel data set with financial information from 2001 to 2017 and estimate the determinants through a panel corrected standard errors regression.FindingsThe authors found that net premiums, technical reserves, capital ratio and score efficiency are micro-determinants in the life insurance sector, whereas in the non-life sector, the micro-determinants include also claim level and liquidity ratio; moreover, the authors found that HHI is a determinant of profitability only in the life insurance. Among the macro determinants set, the authors found that the interest rate has also a significant impact both in the life and non-life insurance.Originality/valueThe authors analyze a dollarized emerging country, which is the first time in this kind of studies. The authors also include the structure-conduct-performance and relative market power paradigm as well as the ES hypothesis, calculated through the data envelopment analysis, as determinants of insurance profitability. Finally, this is the first research to examine the determinants of profitability in Latin American and Caribbean insurers.

Journal

International Journal of Emerging Markets – Emerald Publishing

Published: Nov 22, 2019

Keywords: DEA; Emerging country; Concentration analysis; Insurance profitability; G21; G22; M41

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