What determines the financial performance micro or macro antecedents: A case of Indian general insurance

• Published date: 01 April 2023
• Author: Soumya Sasidharan,V.K. Ranjith,Sunitha Prabhuram
• Date: 01 April 2023
• DOI: http://doi.org/10.1002/jcaf.22592

Received:  August  Revised:  August  Accepted:  August 

DOI: ./jcaf.

RESEARCH ARTICLE

What determines the financial performance micro or macro

antecedents: A case of Indian general insurance

Soumya Sasidharan1V.K. Ranjith2Sunitha Prabhuram1

School of Business, Manipal Academy of

Higher Education, Dubai, UAE

Manipal Institute of Management,

Manipal Academy of Higher Education,

Manipal, Karnataka, India

Correspondence

V.K.Ranjith, Manipal institute of

Management, Manipal Academy of

Higher Education, Manipal ,

Karnataka, India.

Email: ranjith.vk@manipal.edu

Abstract

The insurance industry is vital to any economy, particularly a country’s financial

market. The attempt to investigate the economic performance of the insurance

firms is due to a lack of empirical research in the general insurance sector in

India on the economic performance of insurance organizations concentrating

on firm-specific and external aspects. Therefore, the Insurance companies in

India were studied using econometric panel data of  firms for ten years, from

– to –. Firm-specific factors (firm size, financial leverage, reten-

tion ratio, liquidity, premium growth rate, loss ratio, re-insurance dependence,

and macroeconomic factors (market share, GDP per capita, and inflation) are

included in the model. Findings revealed that retention ratio, premium growth,

and market sharesignif icantly positively affect the ROAwhile, on the other hand,

loss ratio, liquidity, and inflation significantly negatively affect the profitability

(ROA). Other factors, including size, re-insurance dependence, leverage ratio,

and GDP per capita, have no significant impact on insurance firms’ profitability

(ROA). Furthermore, the variables that significantly affect the performance in

terms of ROE are financial leverage and market share, holding a positive impact.

And firm size shows an inverse relationship with ROE.

KEYWORDS

financial performance, firm-specific factors, general insurance, macroeconomic, panel data

1 INTRODUCTION

The modern insurance industry on a global scale is cat-

egorized by globalization, liberalization, and economic

interdependence, driven mainly by the opening of foreign

capital to developing countries to encourage the develop-

ment of national insurers. According to Ward and Zur-

bruegg (), Insurance facilitates economic operations

by transferring risk, compensating losses, and facilitat-

ing access to financial services. Specifically, “insurance

supports financial stability, mobilizes savings, facilitates

trade and commerce, enables more efficient risk man-

agement, encourages loss mitigation, promotes effective

capital allocation, and serves as a substitute for and com-

plements government security programs” (Skipper, ).

For economic development, a well-developed insurance

sector is essential, as it provides long-term infrastructure

development funds while reinforcing the country’s risk-

taking capacity (Charumathi, ). An insurance System

is a contract of risk management mainly used to pro-

tect against the risk of an unpredictable, contingent loss

(Santhiya & Ramalingam, ). The insurers, as risk

absorbers, foster economic and financial markets stabil-

ity and provide individuals with a “sense of peace.” The

global economy without insurance is unsustainable. Insur-

ance companies are major market players that promote

J Corp Account Finance. ;:–. ©  Wiley PeriodicalsLLC. 11wileyonlinelibrary.com/journal/jcaf