Micro-specific Profitability Factors of the Serbian Insurance Industry: A Panel Data Estimation

Abstract

The paper investigates the main micro-specifi c profi tability determinants of the insurance industry in Serbia, covering the period 2008-2016. Data set includes accounting ratios for 19 universal insurers, offi cially reported by the National Bank of Serbia (NBS). We have estimated the fi xed effects model using the OLS and GLM estimation procedures, with return on asset (ROA), return on equity (ROE) and return on total premium (ROTP) as the response variables. The estimated results from different models are quite consistent, with some minor deviations related mainly to the magnitude of the effects. Specifi cally, there is a trade-off between liquidity and profi tability, and the insurance companies exploit economies of scale extensively. Loss and risk exposure have signifi cant adverse effect on profi tability, while productivity proved to be not signifi cant. In addition, the relative market power (market position) and size have signifi cant positive impact on profi tability, while business specialization favors insurance over reinsurance, particularly the life-insurance business, as well as the business specialization dummies (insurance vs. reinsurance, life vs. nonlife insurance). Consequently, an optimal profi tability strategy should be based on mergers and acquisitions, appropriate risk-taking and risk-management practices, and business sophistication through specialization. In addition, the companies should weight costs and benefi ts of keeping an excess of liquid reserves. The results also indicate further market concentration due to the size effects, and it could result in higher prices and lower quality of the services. This in turn imposes the new regulatory challenges in terms of the optimal antitrust strategy and appropriate quality control. The implications of these fi ndings are applicable to other Western Balkan countries, especially to Bosnia and Herzegovina and Macedonia.

Analysing The Determinants of Profitability of Domestic And Foreign Non-Life Insurers in Turkey

“…However, it is statistically significant only in column 3, which indicates that the ROA will increase as the firm grows for foreign-owned insurers. This result, which is consistent with the theory of economies of scale, supports the results of Pervan et al (2012), Burca and Batrinca (2014), Kočović et al (2014), Batool and Sahi,(2019) and Vojinović et al (2020).…”

“…insurance-specific variables affecting insurance companies' performance in Serbia during the period of 2008 to 2016 is explored by Vojinović et al (2020) employing panel regression analysis. Estimation results for 19 insurance companies suggest that the statistically significant determinants of the variable of profitability measured with three alternative indicators (ROA, ROE, and the ratio of net profit to total premium) are liquidity, market penetration ratio, risk exposure, and size, respectively.…”

Determinants of Accounting and Market-based Performance Measures – Case of Croatian Non-financial Listed Companies

“…Though it is usually calculated by dividing output with costs or resources such as capital, labour, material etc., it can be expressed by measuring a company's net sales relative to labour costs. Therefore, the authors have employed productivity (PROD) as dependent variable following [19] approach who investigated profitability determinants in an insurance industry. Although they have found insignificant effect of this variable on performance measured with ROA, ROE and return on total premium variable, we expect its positive sign since higher levels of sales are associated with higher profitability.…”

An Analysis of the Insurance Market in the Czech Republic

“…Financial analysis ratios are generally applied without regard to a company's field of business; consequently, they can be used to determine the current financial situation of commercial insurers. As indicate [9], [12] and [13] in addition to these ratios, there are also ratios that have been specially modified for commercial insurance companies. In order to achieve this paper's set goal, it is necessary to analyze the Czech insurance market and conduct a comparison of select market entities for the years 2014 to 2018, specifically Pojišťovna VZP (a state-run company), Hasičská vzájemná pojišťovna (HPV), and Kooperativa pojišťovna.…”