Akinwunmi Kunle Onafalujo

DOI Number
First page
Last page


Insurance company’s performance can be stymied by internal and external risks. Industry reports show 23 companies out of the 55 operating companies (about 42%) in Nigeria recorded net operating losses in 2015. Macroeconomic risks are external and may be quite significant in providing an (un)favourable environment for performance of the industry particularly in a developing economy like Nigeria. Reflecting on the contribution of insurance to the Nigerian economy which shows an abysmally low penetration, averaging below one percent of GDP when compared to African peers such as South Africa at 13% and Kenya above two percent; it is of essence to investigate how these risks affect its performance which by implication could adversely affect insurance penetration. Dynamic least square regression technique was employed to study the dynamics of macroeconomic risks (GDP, inflation rate, and interest rate) on underwriting performance over the period 1981-2015. Weighed against theoretical underpinnings and other studies particularly in western economies, the study has evidence that interest and inflation rate shock adversely underwriting performance. Also, real GDP does not have positive shock on premium growth and loss ratio.  Monetary policy should address inflation, and interest rates if the underwriting performance shocks in the non-life sector are to be mitigated in Nigeria. In the long term, government should focus on how to improve income per capita and reduce income inequality and dependency ratio so as to connect insurance consumption to real GDP growth.


Macroeconomic risks, Underwriting Performance shocks, profitability

Full Text:



Agiobenebo, T.J. & Ezirim, B.C. (2002). Impact of financial intermediation on the profitability of insurance companies in Nigeria. First Bank of Nigeria Quarterly Review, 2 (1), 4-14.

Ahmed, I. (2016). Effect of capital size on the profitability of listed insurance firms in Nigeria. African Journal of Business Management, 10 (5), 109-113.

Algrim, K. & D’ Arcy, S.P. (2012). The Effect of Deflation or High inflation on the Insurance Industry, Sponsored by Casualty Actuarial Society, Canadian Institute of Actuaries and Society of Actuaries.

Arneric, P. & Curak. (2013). The Persistence of Insurers Profitability. Croatian Operational Research Review (CRORR), 4.

Athanasoglous, P.P., Brissimis, S.N. & Delis, M.D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18 (2), 121-136.

Ayele, A.G. (2012). Factors Affecting Profitability of Insurance Companies in Ethiopia: Panel Evidence (Doctoral dissertation, Addis Ababa University). Retrieved from http://etd.aau.edu.et/dspace/bitstream/123456789/4326 accessed on March 2nd, 2017

Baluch, F., Mutenga, S. & Parsons, C. (2011). Insurance, systemic risk and the financial crisis insurance. The Geneva Papers on Risk and Insurance. Issues and Practice, 36 (1), 126-163.

Bates, I. & Atkins, D. (2007). Management of Insurance Operations. London, Global Professional Publishing.

Berger. A.N., Cummins, J.D. & Weiss, M.A. (1997). The coexistence of multiple distribution systems for financial services: The case of property-casualty insurance. Journal of Business, 70 (4), 515-46.

Brainard, L. & Schwartz, B.L. (2008). What is the role of insurance in economic development? Zurich, Zurich Government and Industry Affairs. Retrieved from: www.zurich.com/internet/main/sitecollectiondocuments/insight/what_is_the_role_of_economic_development.pdf Accessed on 15th June 2016

Brigham, E.F. & Ehrhardt, M.C. (2014). Financial management: Theory and practice, USA, South Western Cengage Learning

Brown, M.J., Chung, J. & Frees, E.W. (2000). International property-liability insurance consumption. Journal of Risk and Insurance, 67 (1), 73-90.

Browne M.J. & Kamiya, S. (2012). A Theory of the Demand for Underwriting. The Journal of Risk and Insurance, 79 (2) 335-349.

Central Bank of Nigeria (2015). Statistical Bulletin. Abuja, Nigeria

Chang, C.H. & Lee, C.C. (2012). Non-Linearity Between Life Insurance and Economic Development: A Revisited Approach. The Geneva Risk and Insurance Review, 37 (2), 223-257.

Charumathi, B. (2012). On the determinants of profitability of Indian life insurers – An empirical study. Proceedings of the World Congress on Engineering. London, U.K, I WCE.

Chen, T.J. & Huang, M.H. (2001). An empirical analysis of determinants of cash holdings by insurance companies in Taiwan. Insurance Monograph, 66, 1-26.

Chen, Y. & Hamwi, I.S. (2000). Performance analyses of U.S. Property-Liability Reinsurance Companies. Journal of Insurance Issues, 23 (2), 140-152.

Chidambaran, N.K., Pugel T.A. & Saunders, A. (1997). An investigation of the performance of the U.S. property-liability insurance industry. Symposium on Financial Risk Management in Insurance Firms. The Journal of Risk and Insurance, 64 (2), 371-382.

Choi, B.P. (2010). The U.S. property and liability insurance industry: Firm growth, size, and age. Risk Management and Insurance Review, 13 (2), 207-224.

Cummins, J.D. (1991). Statistical and Financial Models of Insurance Pricing and the Insurance Firm. The Journal of Risk and Insurance, 58 (2), 261-302.

Curak, M., Pepur, S. & Poposki, K. (2011). Firm and Economic Factors and Performance: Croatian Composite Insurers. The Business Review Cambridge, 19 (1), 136-142.

D’Arcy, S.P. (1988). Use of the CAPM to Discount Property-Liability Loss Reserves. The Journal of Risk and Insurance, 55, 481-491.

Datu, N. (2016). How do insurer specific indicators and macroeconomic factors affect the profitability of insurance business? A panel data analysis on the Philippine Non-life Insurance market, DLSU Research Congress. De La Salle University, Manila, Philippines.

Doherty, N.A. & Garven, J. R. (1995). Insurance cycles: Interest rates and the capacity constraints model. The Journal of Business, 68 (3), 383-404.

Fairley, W.B. (1979). Investment income and profit margins in property-liability insurance: Theory and empirical results. Bell Journal of Economics, 10, 192-210.

Fischer, I. (1971). The purchasing Power of Money, New York, Augustus M. Kelly, Reprints of Economic Classics

Goddard, J., Liu, H., Molyneux, P. & Wilson, O.S.J. (2011).The persistence of bank profit. Journal of Banking and Finance, 35 (11), 2881-90.

Han, L., Li, D., Moshirian, F. & Tian, Y. (2010). Insurance Development and Economic Growth. The Geneva Papers on Risk and Insurance. Issues and Practice, 35 (2), 183-199.

Hardwick, P. & Adams, M. (2002). Firm size and growth in the United Kingdom life insurance industry. The Journal of Risk and Insurance, 69 (4), 577-593.

Ito, K. & Fukao, K. (2010). Determinants of the profitability of Japanese manufacturing affiliates in China and other regions: Does localisation of procurement, sales and management matter?. World Economy, 33 (12), 1639-71.

Jawadi, F. Bruneau, C. & Sghaier, N. (2009). Nonlinear cointegration relationships between Non-life insurance premiums and financial markets. The Journal of Risk and Insurance, 76 (3), 753-783.

Kaplan, M. & Çelik, T. (2008). The persistence of profitability and competition in the Turkish banking sector. 157-167. Retrieved from: http://iibf.erciyes.edu.tr/dergi/sayi30/mkaplan.pdf

Kohers T. & Greene, M.R. (1977). Company size and financial performance: some evidence from the insurance industry. The Journal of Insurance Issues and Practices, 1 (3), 59-66.

Kozak S. (2011). Determinants of profitability of non-life insurance companies in Poland during integration with the European financial system. Electronic Journal of Polish Agricultural Universities, 14 (1), #01.

Lee, C.Y. (2014). The Effects of Firm-Specific Factors and Macroeconomics on Profitability of Property-Liability Insurance Industry in Taiwan. Asian Economic and Financial Review, 4 (5), 681-691.

Lee, C.C., Hsu, Y.C. & Lee, C.C. (2010). An Empirical Analysis of Non-Life Insurance Consumption stationarity. The Geneva Papers on Risk and Insurance: Issues and practice, 35 (2), 266-289.

Levy, H. (2002). Fundamentals of Investments. Great Britain, Pearson Education Limited

Liedtke, P.K. (2007). What’s Insurance to a Modern Economy?. The Geneva Papers on Risk and Insurance – issues and Practice, 32 ( 2), 211- 221.

Ma, Y.L. & Pope, N. (2003). Determinants of International Insurers’ Participation in Foreign Non-Life Markets. The Journal of Risk and insurance, 70 (2), 235-248.

Nigerian Insurers Association, (2011). Nigeria Insurance Digest. Victoria Island, Lagos, Nigerian insurance association

Nigerian Insurers Association, (2013). Nigeria Insurance Digest. Victoria Island, Lagos, Nigerian insurance association

Nigerian Insurers Association, (2015). Nigeria Insurance Digest. Victoria Island, Lagos, Nigerian insurance association

Malik, H. (2011). Determinants of Insurance Company Profitability: An Analysis of Insurance Sector in Pakistan. Academic Research International, 1 (3), 315-321.

Myers, S.C. & Cohn, R. A. (1987). A Discounted Cash Flow Approach to Property-Liability Insurance: Theory and Empirical Results. In Fair rate of Return in Property-Liability Insurance, edited by Cummins and Harrington. Boston: Kluwer

Nweke, M. (2017). Distress: 23 Insurance firms post losses. Retrieved from The Sun, www.sunnewsonline.com Accessed on: July 7th, 2017

Outreville, J.F. (2013). The relationship between insurance and economic development: 85 Empirical Papers for a Review of the Literature. Risk Management and Insurance Review, 16 (1), 71-122.

Outreville, J.F. (1990). The economic significance of insurance markets in developing countries. Journal of Risk and Insurance, 57 (3), 487-498.

Pervan, M., Arneric, J. & Curak, M. (2013). The Persistence of Insurers Profitability. Croatia operational Business Review, 4, 132 -141.

Pervan, M. & Pavić, K.T. (2010). Determinants of insurance companies’ profitability in Croatia, The Business Review Cambridge, 16 (1), 231-238.

Seelanatha, L. (2011). Determinants of Firms' Performance: Some Chinese Evidence. Investment Management and Financial Innovations, 8 (3), 28-38.

Shiu, Y. (2004). Determinants of United Kingdom general insurance company performance. British Actuarial Journal, 10, 1079-1110.

Tosetti, A., Behar, T., Fromenteau, M. & Menart, S. (2001). Insurance: Accounting, Regulation, Actuarial Science. The General Papers on Risk and Insurance Issues and Practice, 26 (2), 232-251.

Vejzagic, M. & Zarafat, H. (2014). An analysis of macroeconomic determinants of commercial banks profitability in Malaysla for period 1995-2011. Asian Economic and Financial Review, 4 (1), 41-57.

Ward, D. & Zurbruegg, R. (2000). Does insurance promote economic growth? Evidence from OECD countries. Journal of Risk and Insurance, 489-506.

Williams, B. (2003). Domestic and International Determinants of Bank Profits: foreign Banks in Australia. Journal of Banking and Finance, 27 (6), 1185-1210.

Weiss, M.A. (2007). Underwriting cycles: A synthesis and further directions. Journal of Risk and Insurance, 30 (1), 31- 45.

Wen, M.M. & Born, P. (2005). Firm-Level data analysis of the effects of net investment income on underwriting cycles: An application of simultaneous equations. Journal of Insurance Issues, 28 (1), 14–32.

Whittington, G. (1980). The profitability and size of United Kingdom Companies 1960- 74. The Journal of Industrial Economics, 28, 335-35.

World Bank (2003), Nigeria Policy Options for Growth and Stability, Report No. 26215-NGA, Washington DC: The World Bank.

DOI: https://doi.org/10.22190/FUEO1902129O


  • There are currently no refbacks.

ISSN 0354-4699 (Print)

ISSN 2406-050X (Online)