EFFECT OF OPERATIONAL RISK ON THE PERFORMANCE OF LISTED INSURANCE COMPANIES IN NIGERIA
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Introduction: This study examines the determinants of profitability, measured by Adjusted Risk-Adjusted Return on Capital (Adjusted RAROC), in the context of listed insurance companies in Nigeria.
Methods: Using a panel data regression analysis, we employ four models: pooled regression, fixed effects, random effects, and Difference Generalized Method of Moments (D-GMM), to explore the impact of operational risk factors, including the claims ratio, expense ratio, leverage, and firm size, on Adjusted RAROC.
Results: The results indicate that leverage and firm size play significant roles in profitability, with higher leverage associated with increased profitability in some models. Conversely, the claims ratio shows a negative relationship with profitability, highlighting the importance of effective risk management. The expense ratio also exhibits a negative impact on profitability, emphasizing the need for efficient cost control. The D-GMM model, which addresses endogeneity issues, reveals that past performance and firm size are crucial predictors of future profitability.
Conclusion and suggestion: Overall, the findings suggest that operational efficiency, risk management, and strategic financial decisions are essential for improving profitability in the Nigerian insurance sector.
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