Market Risk Dynamics and Financial Performance of Life Insurance Companies in Nigeria

Sewhenu Francis DANSU; Olufemi Adebowale ABASS; Jimoh Gbolagade FABIYI

Sewhenu Francis DANSU Lagos State University, Ojo Lagos
Olufemi Adebowale ABASS Lagos State University, Ojo Lagos
Jimoh Gbolagade FABIYI Lagos State University, Ojo Lagos

Keywords: Exchange rate, interest rate, equity market, volatility, market risks and hedging

Abstract

This study examined the relationship between market risk factors and the financial performance of life insurance companies in Nigeria using panel data from thirteen licensed life insurers over the period 2012–2023. An ex post facto research design was adopted, and a census sampling approach was employed. The Two-Stage Least Squares (2SLS) estimation technique was applied to address endogeneity concerns, alongside simple and multiple regression analyses to test the hypotheses. The results indicated that exchange rate volatility has a statistically significant positive effect on financial performance, whereas interest rate risk and equity market volatility do not individually have significant effects. However, when examined jointly, these market risk variables exert a statistically meaningful influence on return on assets (ROA). The study concluded that enterprise risk management (ERM) frameworks incorporating integrated risk management strategies are essential for life insurance firms operating in volatile emerging markets. Insurers should develop comprehensive risk management strategies that address exchange rate fluctuations, interest rate movements, and equity market uncertainties through portfolio diversification, asset-liability matching, and dynamic hedging strategies.