Factors affecting profitability in the insurance sector in Uganda: a case of Statewide Insurance Company Limited

Abstract

Insurance companies are very essential in modern economies because of the role they play with both businesses and individuals in terms of the function of transferring money between various economic units to achieve economic efficiency and risk transfer. Insurance companies aid society economically and socially by preventing losses, lowering anxiety and fear, and boosting employment. As a result, without insurance companies, the current state of business would be unsustainable since risky industries lack the ability to absorb all forms of risk in the already unstable climate. This study investigated what factors affect the profitability of non-life insurance companies in Uganda with an overreaching objective of the ways in which profitability can be improved and maintained in the long term. A longitudinal study was used looking at the financial statements from annual reports of fourteen non-life insurance companies, studying profitability trends over a five-year period from 2016 to 2020. The study was quantitative in nature and used only secondary data available in the annual reports of the companies. Descriptive analysis, correlation, and regression analysis were used to determine how closely related the different variables are to one another. The study found that the debt ratio and solvency ratio are positively significant factors that affect the profitability of insurance companies in Uganda implying that the higher these ratios, the higher the profitability. Leverage and size were found as having a negatively significant impact on profitability meaning that the higher the leverage and size, the lower the profitability. Age was also found to have a negative impact on profitability. The study recommends that SWICO should ensure the improvement of the solvency ratios, debt ratios, leverage, and size as these factors have a significant impact on the profitability of the companies. The study further recommends that all the non-life insurance companies should exploit the current competitive environment to encourage innovativeness and expansion of their offers and services.