Determinants of Profitability of Life Insurance Companies in Nepal

Abstract

The purpose of this research is to examine the impact of Firm Size, current ratio, revenue, fixed assets and Growth Rate on profitability position of selected Nepalese Life Insurance Company. Life insurance is a contract that is made between an individual and insurance company where individual agrees to pay premium and in return, insurance company pays a certain sum of money either on the death of insurance or on the expiry of a fixed period. Profitability is a deviation of the term profit which explains ability to make a profit is a primarily a measuring rod of success of business enterprise. This research uses return on assets (ROA) and return on equity (ROE) as dependent variable and experiment variables as firm size, current ratio, revenue and fixed assets and Growth Rate. The secondary data has been collected from the annual report published by insurance companies for ten years’ period from 2012/13 to 2022/23. Descriptive and Casual research design is used to analyze and interpret the data using SPSS version 23. Three insurance companies i.e. NELIC, NLIC and LIC are taken as sample out of 34 population using purposive sampling method. Multiple linear regression model has been used to show the impact of independent variables on ROA and ROE. The result indicates that there is a negative and statistically significant relation of size with ROA and ROE but other variables i.e. current ratio, fixed assets and growth rate has positive insignificant even at significance level 0.10 with ROA and ROE. Likewise, the regression result revealed that ROA is positively impacted by revenue and fixed assets, where fixed assets is statistically significant and revenue is insignificant respectively. Similarly, ROE is positively impacted by revenue and fixed assets, where fixed assets is statistically significant at significance level of 0.10 and revenue is not significant while Size is negatively significant impact on both ROA and ROE. Key Words: ROA, ROE, Fixed assets, Current Ratio, Revenue, Growth Rate