The Firm’s Specific Factors Affecting the Financial Performance of General Insurance Companies in Sri Lanka

Abstract

Introduction: The financial performance of general insurance companies is influenced by various firm-specific factors, including premium income, claim costs, underwriting results, and financial leverage. These factors are crucial in determining the profitability and overall financial health of insurance firms. This study aims to empirically test the impact of these firm-specific factors on the financial performance of general insurance companies in Sri Lanka.

Methodology: This study on the impact of premium income, claim cost, underwriting results, and financial leverage on the financial performance of general insurance companies in Sri Lanka outlines the approach used to analyze these factors. The study uses a quantitative approach, relying on secondary data from the financial reports of 10 selected general insurance companies in Sri Lanka. Key variables, including premium income, claim costs, underwriting results, and financial leverage (debt-to-equity ratio), are measured and analyzed using statistical tools such as regression analysis to assess their effect on financial performance. Financial performance is measured using Return on Assets (ROA) as a dependent variable. Data analysis is performed using Random-effects panel regression models. The sample includes both publicly listed and private insurance companies, and the analysis focuses on data over a defined period.

Findings: The results of the study revealed that premium income and underwriting results have a significant positive impact on ROA, suggesting that higher premium income and better underwriting practices enhance financial performance. Conversely, higher claim costs and increased financial leverage are found to have a negative effect on profitability, reducing ROA. These findings emphasize the importance of managing underwriting practices and claim costs, while also controlling financial leverage to improve overall financial performance.

Conclusion: The study underscores the significant role that premium income, claim costs, underwriting results, and financial leverage play in shaping the financial performance of general insurance companies in Sri Lanka. To enhance profitability and solvency, insurance firms should focus on increasing premium income, optimizing underwriting results, and managing claim costs and financial leverage effectively. These insights provide valuable guidance for investors, management, and policymakers aiming to improve the financial health of the Sri Lankan insurance industry.