Reinsurance Activities and Sustainability of Insurance Firms in Nigeria

Abstract

The study assessed the impact of reinsurance activities on the sustainability of insurance firms in Nigeria. Specifically, the study examined the effect of reinsurance expenses on profit after tax and return on asset of selected insurance firms in Nigeria and also analysed the effect of reinsurance ceded ratio on profit after tax and return on asset. The study focused on five randomly selected insurance firms over the period of five years spanning from 2013 to 2017. Data were collected from the annual report of the sampled firms and analyses were conducted using pooled OLS, fixed effect and random effect estimation techniques, following descriptive and correlation analyses. Result showed that reinsurance expenses exert positive but not significant effect on profit after tax; effect of reinsurance ceded ratio is negative but not significant. Result further showed that effect of both reinsurance expenses and reinsurance ceded ratio on return on asset was negative and insignificant. The study concluded that reinsurance activities have no significant influence performance and sustainability of insurance firms in Nigeria, though increase in reinsurance expense could reflect positive impact on profit after tax, it influences on return on asset is negative. More so reinsurance cede ratio established negative impact on both profit after tax and return on asset, which underscores detrimental effect of reinsurance activities on a firm’s sustainability. Hence insurance firms in Nigeria should tackle the issue of performance and sustainability as a broader corporate issue influence by more than just the level of reinsurance activities, and also ensure that reinsurance ceded ratio framework does not erode the prospect of improved return on asset at any point in time.