RE-INSURANCE RISK MANAGEMENT ON FINANCIAL PERFORMANCE OF LIST INSURANCE COMPANY IN NIGERIA
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ABSTRACT
This research investigates the impact of Re-insurance risk management on the financial performance of listed insurance companies in Nigeria. The study population consists of 200 employees from chosen insurance businesses in Lagos state. The researcher utilized questionnaires as the data gathering instrument. Descriptive Utilizing a survey research design, this study was conducted. The study utilized 133 respondents, including directors, risk officers, marketers, and subordinate personnel. The acquired data were tabulated and evaluated using straightforward percentages and frequencies.
FIRST PART
INTRODUCTION
Context of the study
Insurance companies play a significant role in the financial services sector of the majority of nations by reducing total risk, contributing to economic growth and efficient resource allocation, lowering transaction costs, creating liquidity, facilitating economies of scale, and spreading financial losses (Duompos, Gaganis, and Pasiouras, 2012). They achieve this by the underwriting of risks inherent to the majority of economic sectors and by providing peace of mind to the majority of economic entities. Therefore, the financial performance of insurers is of utmost importance to a wide range of stakeholders, including shareholders, policyholders, agents, and legislators (Charumathi, 2012).
Risks are increasing as a result of globalization and severe competition, and risk management is becoming a vital component of the success of practically every organization, particularly the insurance industry due to their high-risk enterprises, as risks are associated with each client and their unique risk. Insurance firms’ fundamental business is risk management (Gupta, 2011). The organizations manage both their clients’ and their own risks. This demands the integration of risk management into the systems, procedures, and culture of the organization (Eric, 2005).
The risk management process consists of the phases of setting the context, identifying, analyzing, assessing, treating, monitoring, and communicating risks, which allow for the ongoing improvement of decision making (Ross et al., 2009). By applying risk management, insurance organizations can prevent unanticipated and expensive surprises, and allocate resources more efficiently. It increases communication and provides senior management with a short review of potential hazards to the organization, so assisting them in making better decisions.
Financial performance is a measurement of a company’s financial health over a specified time period. It is measurable from multiple angles, including solvency, profitability, and liquidity. Solvency measures the ratio between the amount of borrowed capital utilised by the business and the quantity of owner equity capital invested. Profitability for insurers is the difference between revenues from underwriting activities and the costs incurred to generate them (Almajali et al., 2012). The financial performance of an insurance firm is contingent on other other aspects, some of which are difficult to define, such as the quality of its management, organizational structure, systems, and controls. Therefore, in order to obtain an appropriate level of reliability, an evaluation of financial health must consider both quantitative and qualitative characteristics (Udaibir et al., 2003).
According to Njogo (2012), risk management is the discovery, evaluation, and prioritization of risks, followed by the coordinated and economical deployment of resources to limit, monitor, and control the likelihood or impact of undesirable events. Uncertainty in financial markets, project failures, legal responsibilities, credit risk, accidents, natural causes and disasters, as well as malicious attacks by an opponent, can all constitute risks. Risk management guarantees that an organization identifies and comprehends its exposure to risk. The objective of effective risk management is to maximize the advantages of a risk while minimizing the risk itself.
Several scholars have argued that risk management (RM) frequently results in improved organizational performance. Proper and efficient RM by insurance firms is crucial to the survival of the majority of organizations and will generally impact financial performance. Therefore, a structured RM approach is essential for achieving superior organizational results (Ashby et al, 2013; Banks, 2004). Thus, this study investigates the effect of risk management on the performance of Nigerian insurance companies.
1.2 DESCRIPTION OF THE PROBLEM
Whether in the insurance industry or any other sector of the financial system, it is widely thought that a company’s risk management procedure is vital to its performance since it works as a powerful brake on probable deviations from specified objectives and policies. This means that an insurance company without adequate risk management techniques is susceptible to fraud, bankruptcy, stagnation, growth retardation, or even natural death due to suboptimal performance.
The performance of insurance companies in Nigeria has fluctuated throughout time, with some incurring financial losses and others being forced out of business. This may be a result of insufficient liquidity management, underpricing, management difficulties, and a high tolerance for investment risk.
While numerous empirical works have identified a variety of causes for the poor financial performance of insurance companies, evidence on the effects of risk management on the corporate performance of Nigerian insurance organizations is sparse. Therefore, inadequate risk management could be severely impacting the financial performance of Nigerian insurance companies. Despite the fact that previous research studies such as Hermanson and Rittenberg (2013) and Kiragu (2014) suggest a connection between risk management and organizational performance, the majority of these studies have focused on banks and other financial institutions, and the available studies have dealt solely with large financial institutions in developed nations. Presently, little is known about the effects of risk management on the corporate performance of Nigerian insurance businesses. In an effort to fill this void, this study tries to evaluate the impact of risk management on the performance of Nigerian insurance businesses.
1.3 PURPOSE OF THE STUDY
The study’s aims are as follows:
I Examine the effect of risk management on the performance of Nigerian insurance businesses.
(ii) Determine the relationship between risk selection and the financial performance of Nigerian insurance businesses.
Determine the effect of risk management on insurance demand in Nigeria.
1.4 RESEARCH HYPOTHESES
HO: risk management has little impact on the success of insurance businesses in Nigeria.
There is an effect of risk management on the performance of Nigerian insurance companies.
The second hypothesis
There is no correlation between risk selection and financial success of insurance businesses in Nigeria, according to the hypothesis.
There is a correlation between risk selection and financial success of insurance businesses in Nigeria, according to the hypothesis.
1.4 Importance of the Research
Students and insurance businesses in Nigeria would find this study to be of great value. The study will also shed light on the impact of Re-insurance risk management on the financial performance of Nigerian insurance companies that are publicly traded. The paper will serve as a resource for future researchers investigating a related problem.
1.5 RADIUS AND RESTRICTIONS OF THE STUDY
Re-insurance risk management on the financial performance of listed insurance companies in Nigeria is the scope of this study.
LIMITATION OF STUDY
Financial limitation – Inadequate funds tend to impede the researcher’s efficiency in locating relevant resources, literature, or information and in collecting data (internet, questionnaire and interview).
Due to time constraints, the researcher will conduct this study alongside other academic duties. This will consequently reduce the time spent conducting research.
DEFINITION OF TERMS
Insurance Risk Management is the assessment and quantification of the likelihood and financial impact of events that may occur in the customer’s environment requiring settlement by the insurer; and the capacity to spread the risk of these events occurring among other insurance underwriter’s in the market.
FINANCIAL PERFORMANCE: Financial performance is a subjective measure of a company’s ability to utilize assets from its principal business model and create revenues. The phrase is also employed as an overall indicator of a company’s financial health over a certain time period.
1.8 STRUCTURE OF THE STUDY
This study project is divided into five chapters for simple comprehension:
The introduction comprises the (overview, of the study), historical context, description of the problem, aims of the investigation, research hypotheses, relevance of the study, scope and limitations of the study, definition of words, and historical context of the study. The second chapter focuses on the theoretical framework upon which the investigation is based, therefore the literature review. The third chapter discusses the study’s research strategy and methodology. Chapter four focuses on data collection, analysis, and findings presentation. The study’s summary, conclusion, and suggestions are presented in Chapter 5.
RE-INSURANCE RISK MANAGEMENT ON FINANCIAL PERFORMANCE OF LIST INSURANCE COMPANY IN NIGERIA
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