Investigation of the Pillars of Sustainability Risk Management as an Extension of Enterprise Risk Management on Palestinian Insurance Firms’ Profitability

Abstract

This research paper examined the simultaneous relationship between sustainability risk management (SRM) as an extension of Enterprise Risk Management (ERM) and Palestinian insurance firms’ profitability, for the period spanning 2007Q1 to 2018Q4, by applying the panel dynamic (Generalized Method of Moments) GMM model. The literature was expanded by providing a comprehensive understanding of determining the pillars of ERM with the use of the factor analysis principle component method. The findings revealed that the firm’s profitability positively corresponded to ERM1 implementation, which represents “management efficiency”. In contrast, it shows negative correspondence to ERM2 implementation, which represents “control and ownership”. Furthermore, there were slightly negative signs from managing the use of leverage and they were conservative in terms of loss reserves. The challenges of firms’ profitability have negatively corresponded to emerging sustainability risks, such as political stability, that cause premiums written to show weak signs of excessive choice of risk or prices that are not met carefully. Interestingly, there is a positive relationship in the interaction between ERM2 implementation during the crisis period on insurance firms’ profitability. There is a robust causal relationship from ERM to the profitability (either positive or negative). The reverse causality is also significant but to a lesser extent. Thus, the study recommends alignment more coherent with the implication of ERM as holistic risk according to the market characteristic towards the environmental perils leads to sustainable development and its segments to maintain the longer term of survival in the firms’ performance.

Putting risk management into the corporate sustainability context

“…The majority of the sustainability managers interviewed identified financial security and profitability as their top driver for engaging with sustainability within their organisation. Quotes from the sustainability managers when asked what their top sustainability drivers are include: “ongoing financial sustainability (mining and industry sector),” “profitability (finance sector),” “cost (food and beverage sector)” and “cost saving (retail sector).” It has been noted that sustainability practices and reporting do result in organisations showing improved financial growth and stability (Ameer and Othman, 2011; Kurapatskie and Darnell, 2013; Schulte and Hallstedt, 2018; Alshehhi et al , 2018; Hou, 2018; Shaheen et al , 2020). In addition, Hou (2018) suggests that organisations with sustainability strategies are more likely to be rewarded by investors with a higher valuation in the financial markets.…”

Nilai Perusahaan Akibat Pelaksanaan Enterprise Risk Management (ERM)

“…Negara Indonesia seperti yang dilakukan (Pamungkas, 2020); (Hanggraeni, 2019); (Iswajuni, 2018); (Aditya dan Naomi, 2017), melakukan penelitian terkait ERM terhadap firm value dengan menunjukkan bahwa kebijakan ERM perusahaan memiliki pengaruh yang signifikan terhadap nilai perusahaan. Demikian halnya di Negara lain seperti (Shatnawi, 2020) manfaat ERM di Yordania dan Malaysia; (Klucka & Grucbichler, 2020) manfaat ERM di Negara Amerika dan Slowakia; (Nasir, 2020) menunjukkan penerapan ERM di Pakistan; (Shaheen, (2020) ERM di Pakistan. Penelitian mereka menunjukkan bahwa ERM memiliki dampak yang positif terhadap nilai perusahaan.…”

The role of risk management in increasing business performance

“…The (Shaheen et al, 2020) study aimed at clarifying the relationship between sustainable risk management and risk management of the institution in Palestinian insurance companies. The results showed that there is a positive relationship between risk management and the use of corporate risk management with an increased profitability, where profits increase with the use of improved risk management strategies.…”