A Study of Determinants and Their Impact on Financial Performance of Private Non-Life Insurance Industry in India

Insurance industry plays a prominent role in economic development of a country. Since India has opened its insurance industry for privatization; it is flourishing with a faster pace. Services Industry in general and financial services industry specifically has become one of the strongest growth drivers for Indian economy. Therefore, it becomes imperative to study the determinants of financial performance of the private non-life insurance industry in India. The study intends to identify the internal financial determinants influencing the financial performance of private non-life insurance companies in India and to study their impact on the performance. To achieve the objectives of study, financial reports of fifteen private general insurance companies are collected from the year 2013 to 2019. Return on Assets (ROA) is taken as proxy for profitability/performance measure and twelve independent variables have been selected after extensive literature review. Panel Data Regression analysis is employed on the data and Fixed Effects Model (FEM) have been applied to analyze the impact of independent variables on ROA. The empirical results revealed that ‘Age of the Company’, ‘Claims Ratio’, ‘Management Expense Ratio’, ‘Premium Growth’, ‘Retention Ratio’ and ‘Technical Reserve Ratio’ are statistically significant determinants affecting the financial performance of respondent firms. ‘Age of the Company’ and ‘Technical Reserve Ratio’ has a positive relationship with profitability, while ‘Claims Ratio’, ‘Management Expense Ratio’, ‘Premium Growth’ and ‘Retained Ratio’ are inversely related to profitability of respondent firms.