Re-insurance Risk Management on Financial Performance of Listed Insurance Company in Nigeria
Chapter One
OBJECTIVE OF THE STUDY
The objectives of the study are;:
(i) To examine the impact of risk management on the performance of insurance companies in Nigeria.
(ii) To find out the relationship between risk selection and financial performance of insurance companies in Nigeria.
(iii) To measure the impact of risk management on demand for insurance in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Risk Management
Risk is defined as the uncertainty associated with a future outcome or event (Banks, 2004). Further, risk is a concept that denotes a potential negative impact to an asset or some characteristic of value that may arise from some present process or future event (Douglas and Wildavsky, 1982). Rejda (2008) defines risk management as the process through which an organization identifies loss exposures facing it and selects the most appropriate techniques for treating such exposures. In risk management, a prioritization process must be followed whereby the risk with the greatest loss and greatest probability of occurrence is handled first and risks with lower loss are handled later (Kiochos, 1997, and Stulz, 2003). There is however, no specific model to determine the balance between risks with greatest probability and loss and those with lower loss, making risk management difficult. Banks (2004) notes that the key focus of risk management is controlling, as opposed to eliminating, risk exposures so that all stakeholders are fully aware of how the firm might be impacted. Insurance companies borrow heavily from the risk management process suggested by Kiochos (1997). According to Kiochos (1997), the risk management process involves four steps: identifying potential losses, evaluating potential losses, selecting appropriate risk management techniques for treating loss exposures and implementing and administering the risk management program. Kimball (2000) concurs that risk management is the human activity which integrates recognition of risk, risk assessment, developing strategies to manage it and mitigation of risk using managerial resources. Generally, a proper risk management process enables a firm to reduce its risk exposure and prepare for survival after any unexpected crisis.
Financial Performance
Financial performance can be measured through evaluating a firm’s profitability, solvency and liquidity. A firm’s profitability indicates the extent to which a firm generates profit from its factors of production. Financial performance can be measured by monitoring the firm’s profitability levels. Zenios et al. (1999) states that profitability analysis focuses on the relationship between revenues and expenses and on the level of profits relative to the size of investment in the business through the use of profitability ratios. The return on equity (ROE) and the return on assets (ROA) are the common measures of profitability. By monitoring a firm’s profitability levels, one can measure its financial performance. 4 Solvency measures give an indication of a firm’s ability to repay all its indebtedness by selling all of its assets. It also provides information about a firm’s ability to continue operating after undergoing a major financial crisis. Quach (2005) states that solvency measures the amount of borrowed capital used by the business relative to the amount of owners’ equity capital invested in the business as an indication of the safety of the creditors interests in the company. Liquidity indicates a firm’s ability to meet its financial obligations as and when they mature without disrupting the normal operations of the business. According to Quach (2005), liquidity can be analysed structurally and operationally. Further, operational liquidity refers to the cash flow measures while structural liquidity refers to the composition of the balance sheet. The incidence and relative magnitude of internal or external disruptions to business activities from risk events also vary considerably across firms depending on the nature of activities and the sophistication of internal risk measurement standards and control mechanisms. While companies should generate enough expected revenues to support a net margin that absorbs expected risk losses from predictable internal failures, they also need to hold sufficient capital reserves to cover the unexpected losses or resort to insurance (Zsidison, 2003). This ensures that losses do not impact negatively on the firm’s financial performance.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to Re-insurance risk management on financial performance of listed insurance company in Nigeria
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on Re-insurance risk management on financial performance of listed insurance company in Nigeria. 200 staff of selected insurance companies in Lagos state was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain Re-insurance risk management on financial performance of listed insurance company in Nigeria
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of Re-insurance risk management on financial performance of listed insurance company in Nigeria
Summary
This study was on Re-insurance risk management on financial performance of listed insurance company in Nigeria. Three objectives were raised which included, to examine the impact of risk management on the performance of insurance companies in Nigeria, to find out the relationship between risk selection and financial performance of insurance companies in Nigeria and to measure the impact of risk management on demand for insurance in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of selected insurance companies in Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up directors, risk officers, marketers and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
Risk management significantly contributes to financial performance of insurance companies, with adoption of risk management practices explaining in financial performance of these companies. The study, therefore, concludes that there is a strong relationship between adoption of risk management practices and financial performance of Nigeria insurance companies. The study further concludes that there are other factors that influence financial performance of insurance companies and that these explain the remaining in financial performance of these companies
Recommendation
The management should leverage information technology in risk management by installing information systems that can carry out risk assessment & measurement more accurately and for monitoring their risk management programs for effectiveness. This should further be complimented by training of employees on risk management policies of the firm, with clearly defined roles and responsibilities for risk management.
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