Reinsurance and Performance of the Ceding Companies: The Nigerian Insurance Industry Experience
DOI:
https://doi.org/10.1515/eb-2017-0015Keywords:
Ceding companies, insurance performance, reinsurance, reinsurance ceded ratio, return on asset, return on equityAbstract
This paper examines the relationship between ceding office gross premium income, underwriting profit and financial stability. The study made use of primary and secondary data. The primary data were obtained from 246 respondents selected from those companies through the use of structured questionnaire. The secondary data obtained from the 2014 and 2015 published financials of the selected ten companies were used to determine the Reinsurance Ceded Ratio (RCR), Return on Asset (ROA), Return on Equity (ROE) as well as the Ratio of Reinsurance Recoverables to Policyholders Surplus (RRPHS). A descriptive research design was employed. The sampling technique adopted was purposive in nature. The study population comprises 56 insurance companies in Nigeria. More so, data collected was analysed using correlation analytical method. The results of this study are quite in line with previous studies and show that reinsurance purchase increases significantly the insurers’ premium income. It is also shown that profitability of the firm is sensitive to change in reinsurance utilisation and has a positive relationship with it. It was established in the study that purchasing reinsurance reduces insurers’ insolvency risk by stabilizing loss experience and increasing capacity. Recommendations were made.References
Adiel, R. (1996). Reinsurance and the management of regulatory ratios and taxes in the property-casualty insurance industry’, Journal of Accounting and Economics, 22(1-3), 207-240.
Asika, N. (2008). Research methodology in the behavioural sciences. Lagos: Longman Nigeria Plc.
Babbie, E. (2005). The basic of social research (3rd edn). Canada: Thomson Learning Inc.
Browne, M. J., & Kamiya, S. (2012). A Theory of the Demand for Underwriting. The Journal of Risk and Insurance, 79(2), 335-349. Retrieved from http://www.aria.org/rts/proceedings/2010/Demandfor Underwriting_Browne and Kamiya.pdf
Cummins, J. D., Dionne, G., Gagné, R., & Nouira, A. (2008). The Costs and Benefits of Reinsurance. Cahier de recherche no IEA-08-04. Retrieved from http://www.hec.ca/iea/cahiers/2008/iea0804_rgagne.pdf
Cummins, J. D., & Weiss, M. A. (2009). Convergence of insurance and financial markets: hybrid and securitized risk-transfer solutions. Journal of Risk and Insurance, 76(3), 493-545. https://doi.org/10.1111/j.1539-6975.2009.01311.x
Cummins, J. D., Feng, Z., & Weiss, M. A. (2012). Reinsurance counterparty relationships and firm performance in the US property-liability insurance industry. Working paper, Temple University, Philadelphia, PA
Derrig, R. A., & Ostaszewski, K. M. (1997). Managing the tax liability of a property-liability insurance company. Journal of Risk and Insurance, 64(4), 695-711. Retrieved from https://www.math.illinoisstate.edu/Krzyysio/Derr-Ost1997JRI-Tax.pdf
Doherty, N. A., & Tinic, S. M. (1981). A note on reinsurance under conditions of capital market equilibrium. Journal of Finance, 36, 949-953. https://doi.org/10.1111/j.1540-6261
Fatula, O. (2007). The imperative of recapitalization and consolidation in the Nigerian insurance industry. Ikeja Bar Review, 128.
Froot, K. A. (2001). The market for catastrophe risk: a clinical examination. Journal of Financial Economics, 60(2-3), 529-571. Retrieved from https://doi.org/10.1016/S0304-405X(01)00052-6
Froot, K. A. (2007). Risk management, capital budgeting, and capital structure policy for insurers and reinsurers. The Journal of Risk and Insurance, 74(2), 273-299. https://doi.org/10.1111/j.1539-6975.2007.00213.x
Garven, J. R., Hillard, J. I., & Grace, M. F. (2014). Adverse selection in reinsurance market. Working paper, Georgia State University. https://doi.org/101057/grir.2014.13
Group of Thirty. (2006). Reinsurance and international financial markets. Washington: Group of Thirty. Retrieved from https://www.group30.org
Hall, M. A. (2010). Government-Sponsored Reinsurance, 19 Annals Health L. 465 (2010). Retrieved from http://lawecommons.luc.edu/annals/vol19/iss3/4
Hoerger, T. J., Sloan, F. A., & Hassan, M. (1990). Loss volatility, bankruptcy, and the demand for reinsurance. Journal of Risk and Uncertainty, 3(3), 221-245. https://doi.org/10.1007/BF00116782
International Association of Insurance Supervisors. (2012). Reinsurance and financial stability. Basel: IAIS. Retrieved from https://www.iaisweb.org
Iqbal, H. T., & Rehman, M. U. (2014a). Reinsurance analysis with respect to its impact on the performance: Evidence from non-life insurers in Pakistan. The IEB International Journal of Finance, 8, 90-113. https://doi.org/10.1505/IJFMS.2014.063946
Iqbal, H. T., & Rehman, M. U. (2014b). Empirical analysis of reinsurance utilisation and dependency with respect to its impact on the performance of domestic non-life stock insurance companies operating in the private sector of Pakistan. International Journal of Financial Services Management, 7(2), 95-112. Retrieved from https://doi.org/10.1504/IJFSM.2014.063946
Iqbal, H. T., Rehman, M. U., & Shahzad, S. J. H. (2014). Analysis of Change in Profitability due to Reinsurance Utilization and Leverage Levels: Evidence from Non-Life Insurance Sector of Pakistan. JISR-MSSE, 12(1). Retrieved from https://www.researchgate.net/publication/273120322
Irukwu, J. O. (1980). Reinsurance in the Third world. Ibadan: the Caxton Press (West Africa).
Jirsarael, S. R., Kalantari, H., Kalantari, D., Jalah, R., & Nozari, K. (2013). Reinsurance and its impact on risk management. Arabian Journal of business and management review, 2(6), 223-229. Retrieved from https://www.arabianjbmr.com/pdfs/OM_Vol_2_(6)/26.pdf
Kamau, M. H. (2013). The relationship between underwriting profit and investment income for the general insurance industry in Kenya (Master’s thesis). University of Nairobi, Kenya.
Kozak, S. (2011). Determinants of profitability of non-life insurance companies in Poland during integration with the European financial system. Electronic Journal of Polish Agricultural Universities, 14(1), 1-14. Retrieved from https://www.ejpau.media.pl
Lelyveld, I. V., Liedorp, F., & Kampman, M. (2009). An empirical assessment of reinsurance risk. DNB Working Paper, No. 201/ January, Amsterdam. Retrieved from https://www.dnb.nl/binaries/Working%20paper%20201_tcm46-212957.pdf
Lin, Y., Yu, J., & Peterson, M. O. (2015). Reinsurance network and their impact on reinsurance decisions: Theory and empirical evidence. Journal of Risk and Insurance, 82(3), 531-569. https://doi.org/10.1111/jori.12032
Mann, P. S. & Lacke, C. J. (2010). Introductory statistics (7th ed.). USA: John Wiley & Sons, Inc. Retrieved from https://archive.org/details/introductoryStatistics7thEdP.MannWilley2010WW
Mayers, D., & Smith, C. W. (1990). On the corporate demand for insurance: evidence from the reinsurance market. The Journal of Business, 63(1), 19-40. Retrieved from http://www.jstor.org/stable/2353235
Naidoo, K. (2010). Strategies for Advancing the Growth and Development of the Nigerian Insurance Industry. Retrieved from http://www.saia.co.za/info-center/saia-documents/archive/archives-various-dat/positionpaper-strat.pdf
Oke, O. (2012). Insurance sector development and economic growth in Nigeria. African Journal of Business Management, 6(23), 7016-7023. https://doi.org/10.5897/AJBM11.2853
Oluoma, R. O. (2014). Impact of insurance market activity on economic growth in Nigeria (Doctoral thesis), University of Nigeria, Nsukka, Nigeria. Retrieved from http://hdl.handle.net/123456789/3684
Ott, R. L. & Longnecker, M. (2010). An introduction to statistical method and data analysis. (6th ed.). Belmont: Cengage Learning. Retrieved from http://www.univpgri-palembang.ac.id/perpusfkip/Perpustakaan/Metodologi/Lyman_Ott,_Michael_Longnecker-An_Introduction_to_Statistical_Methods_and_Data_Analysis,_6th_Edition____-Brooks_Cole(2010).pdf
Park, S. C. & Xie, X. (2014). Reinsurance and systemic risk: The impact of reinsurer downgrading on property- casualty insurers. Journal of Risk and Insurance, 81(3), 587-622. https://doi.org/10.1111/jori.12045
Pitselis, G. (2008). An overview on solvency supervision, regulations and prediction of insolvency. Belgian Actuarial Bulletin, 8(1), 37-53. Retrieved from https://www.iabe.be/sites/default/files/bijlagen/vol4.5- pitselis-O.pdf
Plantin, G. (2006). Does reinsurance need reinsurance? The Journal of Risk and Insurance, 73(1), 153-168. https://doi.org/10.1111/j.1539-6975.2006.00169.x
Polonchek, J. & Miller, R. K. (1999). Contagion effects in the insurance industry. The Journal of Risk and Insurance, 66(3), 459-475. https://doi.org/10.2307/253556
Rewane, B. (2015). Growth options for insurance business in Nigeria. 2015 Insurance Industry Mega Conference, IICC, July 27, 2015 in Lagos.
Sekaran, U. (2003). Research methods for business: A skill-building approach (4th edn). USA: John Wiley & Sons, Inc.
Shah, A., Wilcox, R., & Alip, A. (2015). Insurance regulation for sustainable development. The University of Cambridge Institute for Sustainability Leadership. Retrieved on March 22, 2017, from http://www.cisl.cam.ac.uk/publications/publication-pdfs/insurance-regulation-report.pdf
Shiu, Y. M. (2011). Reinsurance and capital structure: Evidence from the United Kingdom non-life Insurance Industry. The Journal of Risk and Insurance, 78(2), 475-494. https://doi.org/10.1111/j.1539-6975.2010.01387.x
Yang, S. (2015). Insurers’ underwriting result and investment risk-taking behaviour - evidence from US property and casualty insurance industry. World Risk and Insurance Economic Congress Munich, Germany, August 2-6, 2015. Retrieved on February 2, 2017 from http://www.wriec.net/wpcontent/uploads/2015/07/3F3_Yang.pdf
Yinusa, O. & Akinlo, T. (2013). Insurance development and economic growth in Nigeria, 1986-2010. Journal of Economics and International Finance, 5(5), 218-224. https://doi.org/10.5897/JEIF2013.0498
Downloads
Published
Issue
Section
License
Copyright (c) 2017 Sunday Adekunle Aduloju, Sunday Stephen Ajemunigbohun (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
How to Cite
