ABSTRACT
Risk management is a critical aspect of the performance and growth of insurance firms. This study examined the effects of the underwriting capacity of insurance companies and the rate of carbon footprints in an economy on the financial performance of listed insurance companies in eight (8) selected countries in the sub-Saharan African region. It is argued in the study that both internally controlled factors (underwriting capacity) and factors that are external to the insurance industry (carbon footprint) generate or intensify risks faced by the insurance firms. The study employs secondary data collected from the sampled insurance firms' annual audited financial statements. Data used involves forty-five (45) insurance firms in eight (8) selected sub-Saharan African countries for the period of 2010 to 2019. To present a robust outcome in the relationships, a dynamic estimation procedure was adopted based on system GMM estimation technique and thedata were estimated with the aid of Eviews 10.0 econometric statistical package using dependent variables (ROA, ROE and Tobin’s Q), explanatory variables (shareholders fund, underwriting profit, reserves, earning asset ratio, gross premium, the ratio of ceded reinsurance and CO2 emission) and moderating variables of firm’s size, economic growth and inflation rate.
The results from the study reveal that the pattern of effects of underwriting capacity or carbon footprints differ in terms of the factors considered or the measurement used for a performance indicator. In particular, the study found that shareholders' funds, underwriting profit, reserves, earning asset ratio and gross premium written exert significant effects on the performance of the insurance firms, although the effects vary depending on whether ROA, ROE, or Tobin's Q is used as a performance indicator. Underwriting profit was found to have unambiguous significant and positive effects on all the performance indicators while reserves had significant negative effects on all the performance indicators of insurance firms. The ratio of ceded reinsurance was however found to have no significant impact on the performance of listed insurance firms in the selected Sub-Saharan African countries.
The study also finds that the level of carbon footprint in the economy exerts significant negative effects on all the performance indicators of insurance firms. Optimal risk and shareholder's fund management strategies, as well as sustainable insurance procedures, are therefore recommended in the study.
