Portfolio Allocation and Financial Performance of Insurance Industry in Nigeria

Abstract

This paper investigated the connection between portfolio allocation and financial performance of insurance industry in Nigeria. The data was obtained from secondary sources and estimated with autoregressive distributed lag (ARDL). The study discovered a long-run relationship between portfolio allocation to cash and equivalents, financial assets, reinsurance assets, investment properties, other receivables and prepayments, property and equipment and financial performance proxied by growth in gross premium income (GPI). Further research reveals that allocation to in cash and equivalents, other receivables and prepayments and properties and equipment had an insignificant negative effect on GPI. Furthermore, the study discovered that investment in financial assets, reinsurance assets and investment properties had positive statistically significant relationship with GPI. This result implies that insurance companies’ investment in financial assets, reinsurance assets, investment properties is relativ ely high and do have strong correlation with financial performance. Hence, portfolio management in insurance industry plays a crucial role in finance. Policy should be geared towards purchase of valueadding property and equipment, purchase of intangibles, efficient utilization of proceeds from sale of property and equipment and retention of cash and cash equivalents for prompt payment of claims.