Financial Risks and Financial Performance of Insurance Companies in Nigeria

Abstract

Though, insurance companies serve as a tool to mitigate the effect of loss or damage to both individuals and organisations, they are also exposed to variety of financial risks which could negatively impact their financial performance. This study investigated the impact of financial risks on the Nigerian insurance companies financial performance. Using an ex-post facto research design, data for twelve years period (2012-2023) for 10 insurance companies was extracted from their audited annual reports. Descriptive and inferential analysis were performed on the extracted data using Eviews 9. The result of the fixed effect model estimation revealed that liquidity risks, credit risks and underwriting risks does not significantly affect return on assets. Thus, the study found that financial risks have no significant impact on the financial performance of insurance companies in Nigeria. It was recommended that insurance companies diversify their investment portfolio by investing their idle funds across different industries and that the National Insurance Commission (NAICOM) should ensure adherence to the provision of section 41 and 25 of the Insurance Act of 2003 which deal with the timely payment of insurance premiums to the insurer and the investing of insurance funds.