An investigation into the firm specific factors affecting profitability of short term insurance and reinsurance companies in Zimbabwe (2009 - 2013)

Abstract

Lutz (2010) defined profitability as a measure of how much output you can get from employing a certain amount of an asset. It is one of the most important objectives of financial management because one goal of financial management is to maximize the owners’ wealth. The aim of this study is to investigate firm specific factors affecting profitability of short term insurance and reinsurance companies in Zimbabwe. These factors include firm age, liquidity, leverage, firm size and volume of capital with return on assets (ROA) as a proxy for profitability. The study looks at the relationship between profitability and a set of selected variables whereby profitability is the dependent variable with the independent variables being firm age, firm size, volume of capital, leverage liquidity ratio. The sample size was all the twenty nine (29) short term insurance and reinsurance companies that were in operation at least five years from 2009-2013 existence. The study is predominantly quantitative and involved analysing secondary data in the individual company’s financial statements available at the regulator (IPEC) to determine profitability, company size, liquidity and leverage of each insurance company over the five year period. The results show that firm age and liquidity have a positive relationship with profitability though it is not statistically significant whilst firm size, volume of capital and leverage ratio have a negative relationship with profitability which also is not statistically significant. Further, the results from the study show that the Zimbabwean short term insurance industry has unique characteristics as evidenced by the deviations from available empirical evidence from other countries by various researchers.