EFFECTS OF FIRM SPECIFIC FACTORS ON NON-LIFE INSURANCE COMPANIES’ PROFITABILITY IN UGANDA; A CASE STUDY OF UGANDA INSURANCE MARKET

This study investigates the effect of firm-specific factors on the profitability of non-life insurance companies operating in Uganda to be more specific, to examine the relationship between profitability and economic factors, firm size, underwriting factor.  For this purpose, secondary data of 21 non-life insurance companies operating in Uganda from the period 2004–2015 were collected from IRA. The data was analyzed using descriptive statistics, coefficient of determination (R2), standard error test, and test of correlation (T), multiple linear regression. In this study, profitability is measured by profit before tax.  The independent variables used are net premium amount, expense ratio, net claims amount, retention ratio, reinsurance ratio, economic growth rate and inflation rate.  According to the empirical results, variables that significantly predict profitability of non-life insurance companies are market size of the company, premium amount, penetration rate, firm size and inflation rate at 5% and 10% level of significance whereas profitability is statistically significant and negatively related to the company’s expense ratio at 10% significance level. However, reinsurance ratio and the premium retention ratio are not found to be important explanatory variables. The policy implications of this study for the stakeholders of the insurance industry are numerous. Insurers should pay due attention to their underwriting activities to ensure objective risk selection and management. In addition, insurers need to invest more on human capital development and staff motivation as these enhance productivity and subsequently profitability.

TABLE OF CONTENTS

APPROVAL.. i

DECLARATION.. ii

ACKNOWLEDGEMENT.. iii

DEDICATION.. iv

ABSTRACT.. v

LIST OF TABLES. viii

LIST OF FIGURES. ix

LIST OF ABBREVIATIONS. x

CHAPTER ONE: INTRODUCTION.. 1

1.0. INTRODUCTION.. 1

1.1. BACKGROUND OF THE STUDY.. 1

1.2. PROBLEM STATEMENT.. 3

1.3. MAIN OBJECTIVE.. 3

1.3.1. Specific objectives. 3

1.4. HYPOTHESIS. 3

1.5. SCOPE OF THE STUDY.. 4

1.6. SIGNIFICANCE OF THE STUDY.. 4

1.7. LIMITATIONS OF THE STUDY.. 4

CHAPTER TWO: LITERATURE REVIEW... 5

2.1. INTRODUCTION.. 5

2.2. Literature Review.. 5

CHAPTER THREE: RESEARCH METHODOLOGY.. 10

3.1. INTRODUCTION.. 10

3.2. RESEARCH DESIGN.. 10

3.3. POPULATION.. 10

3.4. MODEL:. 10

3.4.1. ASSUMPTIONS:11

CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION OF RESULTS. 14

4.1. INTRODUCTION.. 14

4.2. MODEL SPECIFICATIONS. 15

4.2.1 CHECKING FOR MULTICOLLINEARITY.. 17

4.2.2 CHECKING FOR NORMALITY OF RESIDUALS. 18

4.2.3. CHECKING FOR HOMOSCEDASTICITY.. 19

4.2.4. Robustness Test22

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS. 23

5.1. CONCLUSION.. 23

5.2. RECOMMENDATION.. 24

REFERENCES. 25

APPENDIX.. 27