UNDERWRITING PRACTICES AND FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN NIGERIA

Abstract

This study examines the extent to which underwriting practices influence the financial performance of insurance companies in Nigeria. This study was conducted using expo-facto research design and cross-sectional analysis. The study tested the extent to which set of independent variables (Underwriting profit, Underwriting expenses, Net premium, Net claim) affects the dependent variable (Profit Before Tax). A sample of ten insurance companies were selected from the pool of registered firms. Secondary data were extracted from the audited annual report of the selected insurance companies, the data covering a period from 2013 to 2022. The statistical tool that was employed in analysing the data is E-VIEWS statistical software 10.0. Analysis was based on descriptive statistics while hypotheses were tested using simple and multiple panel regression analysis. Based on the results obtained from the study, it was revealed that the extent to which underwriting profit influences profitability is 2.29%, thus, it does not significantly affect profitability. The extent to which underwriting expenses and net claim affects profitability are 47.45% and 61.50% respectively, making them significantly affect profitability. Net premium on the other hand significantly contributes to profitability by 66.93%. From the multiple regression analysis result, underwriting practices influences financial performance by 66.33% and the variable that stood out as a major and strong influence is net premium, therefore, insurance companies must ensure they get their rating right as that is a non- negotiable factor for profit. The study recommends that insurance companies should focus on having healthy underwriting practices while diversifying revenue streams. Finally, the study suggests that further studies should make use of qualitative methods and consider the effects of consumer behaviour and preference on underwriting practices and financial performance.