Determinants of financial performance in Nepalese nonlife insurance companies: A panel data analysis

Abstract

The financial performance of insurance companies plays a fundamental role in driving the overall economy towards economic development and progress. The study aims to examine the impact of financial performance indicators on the Return on Equity (ROE) and Return on Assets (ROA) of nonlife insurance companies. In the methodology of study, 13 nonlife insurance companies have been considered, and panel data have been analyzed for a 14-year period (2008–2021). The fixed effects model was estimated using the E-Views software package. The panel data analysis results point to a noteworthy and favorable impact on ROA, explaining 92.75% of its variance. The results show that there is a strong positive relationship between ROA and four key factors: gross premium, retention ratio, expense ratio, and combined ratio. This underscores the importance of enhancing elements like gross premium, retention ratio, expense ratio, and combined ratio to elevate ROA. The conclusion of the study provides useful insights for improving the financial performance and competitiveness of nonlife insurance companies in Nepal. The study reveals the key success factors that affect the profitability and efficiency of the insurance sector. This suggests that nonlife insurance companies in Nepal can improve their profitability by focusing on increasing their gross premium, retention ratio, reducing expense ratio, and decreasing combined ratio. The findings have important implications for enhancing the performance and competitiveness of the nonlife insurance sector in Nepal.