EFFECT OF FIRM SPECIFIC FACTORS ON PROFITABILITY OF INSURANCE COMPANIES IN NEPAL

Abstract

This study examines the effect of firm specific factors on profitability of insurance companies in Nepal. This study has employed descriptive and casual comparative research design. This study used secondary data sources gathered from insurance companies of Nepal for ten year periods (2013/14-2021/22). This study used descriptive analysis, correlation analysis and multiple regression analysis by using SPSS. The result shows that the age of companies, liquidity, leverage, premium growth and size of the companies are important factors affecting the profitability of insurance companies in Nepal. The correlation analysis reveals that age of the companies and liquidity ratio have significant negative relation with profitability (ROA and ROE) of sample insurance companies in Nepal. Then, leverage has insignificant positive relationship with ROA and significant positive relationship with ROE. The correlation analysis also shows that premium growth has insignificant positive correlation with ROA and it has also insignificant positive relation with ROE. Further, the size of companies has insignificant negative relationship with ROA and significant negative relationship with ROE. The multiple regression shows that age of companies and size of companies has insignificant negative impact on profitability (ROA and ROE) of insurance companies. At the meantime, liquidity has significant negative impact on profitability of insurance companies. However, leverage has significant negative impact on ROA and significant positive impact on ROE. Moreover, premium growth has insignificant positive effect on profitability (ROA and ROE) of insurance companies in Nepal. Hence, it can be concluded that liquidity and leverage are the key factors of profitability of insurance companies in Nepal.