Inflation Risk and the Performance of Insurance Firms in Nigeria

ABSTRACT

This study empirically examines the nexus between inflation risk and the performance of insurance firms in Nigeria using annual time series data that covers the period 1986-2022. Net profit as ratio of total assets of insurance firms is as performance measure, which is the dependent variable and is regressed on five key explanatory variables- inflation risk, investment by insurance firms, growth rate of nominal GDP, firm size and external vulnerability. The Ordinary Least Squares (OLS) econometric technique was utilized for the estimation of the model, after the preliminary examination of the variables using descriptive statistics. The empirical findings revealed a negative and significant relationship between inflation risk and performance of insurance firms in Nigeria. Insurance investment, growth rate of GDP is positively and significantly related to performance of insurance firms. Firm size is positively related with the performance of insurance firms albeit a weak impact, while external vulnerability is negatively and significantly related to the performance of insurance firms in Nigeria. Based on the foregoing findings it is recommended that inflationary pressures be tamed to the barest minimum, and more importantly stabilized to reduce the risk of inflation uncertainty. Insurance firm-investment-enhancing policies through appropriate investment diversification, growth-stimulating measures and shock-mitigating policies and initiatives should also be implemented in order to enhance the performance of insurance firms in Nigeria.